Table of Contents

 

 

 

**UNITED STATES**SECURITIES AND EXCHANGECOMMISSION

**Washington, D.C. 20549**

 

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**Form 10-Q**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30,2009**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from           to**

** **

**Commission File Number 001-12593**

 

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**Atlantic Tele-Network, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **47-0728886**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification Number) |

 

**10 Derby Square**

**Salem, MA 01970**

**(Addressof principle executive offices, including zip code)**

** **

**(978) 619-1300**

**(Registrant’stelephone number, including area code)**

** **

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 
| Large accelerated filer  o                     | Accelerated filer x          |
|------------------------------------------------|-----------------------------------|
|                                           |                              |
| Non-accelerated filer o                        | Smaller reporting  company o |
| (Do not check if a smaller  reporting company) |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act): Yes o No x

 

As of August 10,2009, the registrant had outstanding 15,235,876 shares of its common stock($.01 par value).

 

 

 

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**ATLANTICTELE-NETWORK, INC.**

 

FORM 10-Q

Quarter Ended June 30, 2009

 
| CAUTIONARY  STATEMENT REGARDING FORWARD LOOKING STATEMENTS |                                                                                                      |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|
|                                                       |                                                                                                      |
| PART I—FINANCIAL  INFORMATION                    |                                                                                                      |
|                                                       |                                                                                                      |   |
| Item 1                                                | Unaudited Condensed  Consolidated Financial Statements                                                    |   |
|                                                       |                                                                                                      |   |
|                                                       | Condensed  Consolidated Balance Sheets at December 31, 2008 and June 30, 2009                   | 4 |
|                                                       |                                                                                                      |   |
|                                                       | Condensed  Consolidated Income Statements for the three and six months ended  June 30, 2008 and 2009 | 5 |
|                                                       |                                                                                                      |   |
|                                                       | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  2008 and 2009    | 6 |
|                                                       |                                                                                                      |   |
|                                                       | Notes  to Unaudited Condensed Consolidated Financial Statements                                           | 7-17 |
|                                                       |                                                                                                      |   |
| Item 2                                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations               | 17-30 |
|                                                       |                                                                                                      |   |
| Item 3                                                     | Quantitative  and Qualitative Disclosures About Market Risk                                               | 30 |
|                                                       |                                                                                                      |   |
| Item 4                                                     | Controls and  Procedures                                                                                  | 30 |
|                                                       |                                                                                                      |   |
| PART II—OTHER  INFORMATION                       |                                                                                                      |
|                                                       |                                                                                                      |   |
| Item 1                                                     | Legal Proceedings                                                                                         | 31 |
|                                                       |                                                                                                      |   |
| Item1A                                                     | Risk Factors                                                                                              | 31 |
|                                                       |                                                                                                      |   |
| Item 2                                                     | Unregistered  Sales of Equity Securities and Use of Proceeds                                              | 31 |
|                                                       |                                                                                                      |   |
| Item 4                                                     | Submission of  Matters to a Vote of Security Holders                                                      | 31 |
|                                                       |                                                                                                      |   |
| Item 6                                                     | Exhibits                                                                                                  | 32 |
|                                                       |                                                                                                      |   |
| SIGNATURES                                                 |                                                                                                      |
|                                                       |                                                                                                      |
| CERTIFICATIONS                                             |                                                                                                      |

 

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**Cautionary Statement Regarding Forward-LookingStatements**

 

ThisQuarterly Report on Form 10-Q (or the “Report”) contains forward-lookingstatements relating to, among other matters, the future financial performanceand results of operations of ATN and its subsidiaries, including the relativecontributions of GT&T, Commnet, Sovernet and BDC; the benefits and timingof the pending acquisition of wireless assets from Verizon Wireless, includingwhether the transaction will be completed; the competitive environment in ourkey markets, demand for our services and industry trends; the outcome oflitigation and regulatory matters; our continued access to the credit andcapital markets; the pace of our network expansion and improvement, includingour realization of the benefits of these investments; and management’s plansand strategy for the future.  Theseforward-looking statements are based on estimates, projections, beliefs, andassumptions and are not guarantees of future events or results.  Actual future events and results could differmaterially from the events and results indicated in these statements as aresult of many factors, including, among others, (1) the ability of ATN tosecure financing for the balance of the purchase price of the wireless assetsto be acquired from Verizon Wireless, which is dependent on market conditions;there can be no assurances that such financing will be available to ATN at allor on terms that are favorable to ATN; (2) the ability of ATN to operate aretail wireless business in the United States on this scale and integrate theseoperations into its existing operations; (3) the ability to receive therequisite regulatory consents and approvals to consummate the Verizon Wirelesstransaction; (4) the general performance of the acquired operationsrelated to the Verizon Wireless assets to be acquired, including operatingmargins and the future retention and turnover of the acquired subscriber base; (5) significantpolitical and regulatory uncertainty facing our exclusive license to providelocal exchange and international voice and data services in Guyana; (6) anysignificant decline in the price or volume, including as a result of bypassactivities, of international long distance calls to Guyana; (7) theregulation of rates that GT&T may charge for local wireline telephone service;(8) significant tax disputes between GT&T and the Guyanese taxauthorities; (9) the derivation of a significant portion of our U.S.wireless revenue from a small number of customers and the extent to which ourwholesale customers build or acquire overlapping networks; (10) ourability to maintain favorable roaming arrangements, including the rates Commnetcharges its wholesale customers; (11) the current global economicrecession, along with difficult and volatile conditions in the capital andcredit markets; (12) increased competition; (13) economic, political andother risks facing our foreign operations; (14) regulatory changes affectingour businesses; (15) the loss of certain FCC licenses; (16) rapid andsignificant technological changes in the telecommunications industry;(17) our reliance on a limited number of key suppliers and vendors fortimely supply of equipment and services relating to our network infrastructure;(18) any loss of any key members of management; (19) the adequacy and expansioncapabilities of our network capacity and customer service system to support ourcustomer growth; (20) dependence of our wireless and wireline revenue on thereliability and performance of our network infrastructure; (21) the occurrenceof severe weather and natural catastrophes; and (22) our ability to realize thevalue that we believe exists in businesses that we acquire. These and otheradditional factors that may cause actual future events and results to differmaterially from the events and results indicated in the forward-lookingstatements above are set forth more fully under Item 1A “Risk Factors” of theCompany’s Annual Report on Form 10-K for the year ended December 31,2008, which is on file with the SEC. The Company undertakes no obligation to updatethese forward-looking statements to reflect actual results, changes inassumptions or changes in other factors that may affect such forward-lookingstatements.

 

In this Report the words “theCompany”, “we,” “our,” “ours” and “us” refer to Atlantic Tele-Network, Inc.and its subsidiaries, unless the context indicates otherwise. This Reportcontains trademarks, service marks and trade names that are the property ofATN, its subsidiaries and others.

 

Reference to dollars ($)refer to U.S. dollars unless otherwise specifically indicated.

 

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**PART I—FINANCIALINFORMATION**

**Item 1.  Unaudited Condensed Consolidated FinancialStatements**

 

**ATLANTIC TELE-NETWORK, INC. ANDSUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(Dollarsin thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                     | ** ** | **December 31,** | ** ** | ** **              | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                     | ** ** | **2008  As adjusted** | ** ** | **June 30,  2009** | ** ** |
| **ASSETS**                                                                                                                                                                                     |       |                  |       |                    |       |
| Current Assets:                                                                                                                                                                                |       |                  |       |                    |       |
| Cash and cash equivalents                                                                                                                                                                      |       | $                     | 79,665     |                    | $          | 90,210 |   |
| Short term investments                                                                                                                                                                         |       | 2,956                 |       | —                  |       |
| Accounts receivable, net of allowances of $2.5  million and $3.6 million, respectively                                                                                                         |       | 26,779                |       | 30,460                  |       |
| Materials and supplies                                                                                                                                                                         |       | 5,669                 |       | 6,166                   |       |
| Prepaid income taxes                                                                                                                                                                           |       | 10,708                |       | —                  |       |
| Deferred income taxes                                                                                                                                                                          |       | 1,443                 |       | 1,443                   |       |
| Prepayments and other current assets                                                                                                                                                           |       | 4,101                 |       | 2,953                   |       |
| Total current assets                                                                                                                                                                           |       | 131,321               |       | 131,232                 |       |
| Fixed Assets:                                                                                                                                                                                  |       |                  |       |                    |       |
| Property, plant, and equipment                                                                                                                                                                 |       | 342,059               |       | 362,057                 |       |
| Less accumulated depreciation                                                                                                                                                                  |       | (143,829              | )          | (156,957                | )          |
| Net fixed assets                                                                                                                                                                               |       | 198,230               |       | 205,100                 |       |
| Licenses                                                                                                                                                                                       |       | 33,658                |       | 34,202                  |       |
| Goodwill                                                                                                                                                                                       |       | 40,237                |       | 40,361                  |       |
| Other intangibles, net                                                                                                                                                                         |       | 2,456                 |       | 2,138                   |       |
| Deferred income taxes                                                                                                                                                                          |       | 8,570                 |       | 6,899                   |       |
| Other assets                                                                                                                                                                                   |       | 5,349                 |       | 5,105                   |       |
| Total assets                                                                                                                                                                                   |       | $                     | 419,821    |                    | $          | 425,037 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                 |       |                  |       |                    |       |
| Current Liabilities:                                                                                                                                                                           |       |                  |       |                    |       |
| Current portion of long-term debt                                                                                                                                                              |       | $                     | 750        |                    | $          | 750 |   |
| Accounts payable and accrued liabilities                                                                                                                                                       |       | 28,707                |       | 23,843                  |       |
| Dividends payable                                                                                                                                                                              |       | 2,777                 |       | 2,779                   |       |
| Accrued taxes                                                                                                                                                                                  |       | 8,631                 |       | 9,533                   |       |
| Advance payments and deposits                                                                                                                                                                  |       | 3,652                 |       | 3,528                   |       |
| Other current liabilities                                                                                                                                                                      |       | 3,395                 |       | 5,031                   |       |
| Total current liabilities                                                                                                                                                                      |       | 47,912                |       | 45,464                  |       |
| Deferred income taxes                                                                                                                                                                          |       | 28,736                |       | 28,736                  |       |
| Other liabilities                                                                                                                                                                              |       | 8,202                 |       | 5,015                   |       |
| Long-term debt, excluding current portion                                                                                                                                                      |       | 73,311                |       | 72,978                  |       |
| Total liabilities                                                                                                                                                                              |       | 158,161               |       | 152,193                 |       |
| Commitments and contingencies (Note 12)                                                                                                                                                        |       |                  |       |                    |       |
| Atlantic Tele-Network, Inc.’s Stockholders’  Equity:                                                                                                                            |       |                  |       |                    |       |
| Preferred stock, $0.01 par value per share;  10,000,000 shares authorized, none issued and outstanding                                                                                         |       | —                |       |                    |       |
| Common stock, $0.01 par value per share;  50,000,000 shares authorized; 15,725,057 and 15,732,382 shares issued,  respectively, and 15,228,610 and 15,235,876 shares outstanding, respectively |       | 157                   |       | 157                     |       |
| Treasury stock, at cost; 496,447 and 496,506  shares, respectively                                                                                                                             |       | (4,560                | )          | (4,576                  | )          |
| Additional paid-in capital                                                                                                                                                                     |       | 107,312               |       | 108,019                 |       |
| Retained earnings                                                                                                                                                                              |       | 132,866               |       | 145,820                 |       |
| Accumulated other comprehensive loss                                                                                                                                                           |       | (6,902                | )          | (4,988                  | )          |
| Total Atlantic Tele-Network, Inc’s stockholders’  equity                                                                                                                             |       | 228,873               |       | 244,432                 |       |
| Non-controlling interests                                                                                                                                                                      |       | 32,787                |       | 28,412                  |       |
| Total stockholders’ equity                                                                                                                                                                |       | 261,660               |       | 272,844                 |       |
| Total liabilities and stockholders’ equity                                                                                                                                                |       | $                     | 419,821    |                    | $          | 425,037 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED INCOME STATEMENTS**

**FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and2009**

**(Unaudited)**

**(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                                                                                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                            | ** ** | **2008  As adjusted**                           | ** ** | **2009**                                      | ** ** | **2008  As adjusted** | ** ** | **2009** | ** ** |
| **REVENUE:**                                                                                                                                                                                                                                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wireless                                                                                                                                                                                                                                                                              |       | $                                               | 24,786     |                                          | $          | 36,515 |   | $ | 44,539 |   | $ | 68,240 |   |
| Local telephone and data                                                                                                                                                                                                                                                              |       | 12,267                                          |       | 13,500                                        |       | 24,514 |   | 26,553 |   |
| International long distance                                                                                                                                                                                                                                                           |       | 12,387                                          |       | 9,878                                         |       | 24,942 |   | 20,279 |   |
| Other                                                                                                                                                                                                                                                                                 |       | 974                                             |       | 402                                           |       | 2,049 |   | 1,189 |   |
| Total revenues                                                                                                                                                                                                                                                                        |       | 50,414                                          |       | 60,295                                        |       | 96,044 |   | 116,261 |   |
| **OPERATING EXPENSES**(*excluding depreciation and amortization unless otherwise indicated*):                                                                                                                                                                                         | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Termination and access fees                                                                                                                                                                                                                                                           |       | 8,376                                           |       | 10,887                                        |       | 15,964 |   | 21,333 |   |
| Internet and programming                                                                                                                                                                                                                                                              |       | 863                                             |       | 397                                           |       | 1,762 |   | 1,186 |   |
| Engineering and operations                                                                                                                                                                                                                                                            |       | 5,930                                           |       | 7,511                                         |       | 11,785 |   | 14,457 |   |
| Sales and marketing                                                                                                                                                                                                                                                                   |       | 2,944                                           |       | 3,807                                         |       | 5,618 |   | 7,399 |   |
| General and administrative                                                                                                                                                                                                                                                            |       | 6,819                                           |       | 9,787                                         |       | 12,702 |   | 18,003 |   |
| Depreciation and amortization                                                                                                                                                                                                                                                         |       | 7,424                                           |       | 9,794                                         |       | 14,501 |   | 18,994 |   |
| Total operating expenses                                                                                                                                                                                                                                                              |       | 32,356                                          |       | 42,183                                        |       | 62,332 |   | 81,372 |   |
| Income from operations                                                                                                                                                                                                                                                                |       | 18,058                                          |       | 18,112                                        |       | 33,712 |   | 34,889 |   |
| **OTHER INCOME (EXPENSE):**                                                                                                                                                                                                                                                           | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                                                                                                                                                                                                                                                      |       | (664                                            | )          | (1,197                                        | )          | (1,316 | ) | (2,355 | ) |
| Interest income                                                                                                                                                                                                                                                                       |       | 410                                             |       | 369                                           |       | 978 |   | 709 |   |
| Other income, net                                                                                                                                                                                                                                                                     |       | 143                                             |       | 10                                            |       | 368 |   | 36 |   |
| Other income (expense), net                                                                                                                                                                                                                                                           |       | (111                                            | )          | (818                                          | )          | 30 |   | (1,610 | ) |
| **INCOME BEFORE INCOME TAXES**                                                                                                                                                                                                                                                        |       | 17,947                                          |       | 17,294                                        |       | 33,742 |   | 33,279 |   |
| Income taxes                                                                                                                                                                                                                                                                          |       | 6,642                                           |       | 7,342                                         |       | 14,032 |   | 14,298 |   |
| **INCOME BEFORE EQUITY IN  EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                                                                                                                                                                    |       | 11,305                                          |       | 9,952                                         |       | 19,710 |   | 18,981 |   |
| Equity in earnings of unconsolidated affiliates                                                                                                                                                                                                                                       |       | 272                                             |       | —                                        |       | 735 |   | — |   |
| **NET INCOME**                                                                                                                                                                                                                                                                        |       | 11,577                                          |       | 9,952                                         |       | 20,445 |   | 18,981 |   |
| Less: Net income attributable to non-controlling  interests, net of tax of $0.9 million and $0.7 million for the three months  ended June 30, 2008 and 2009, respectively, and $1.8 million and $1.4  million for the six months ended June 30, 2008 and 2009, respectively |       | (1,373                                          | )          | (315                                          | )          | (2,374 | ) | (543 | ) |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS**                                                                                                                                                                                                              |       | $                                               | 10,204     |                                          | $          | 9,637 |   | $ | 18,071 |   | $ | 18,438 |   |
| **NET INCOME PER WEIGHTED AVERAGE  SHARE ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS:**                                                                                                                                                                                  | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                                                                                                                                 |       | $                                               | 0.67       |                                          | $          | 0.63 |   | $ | 1.19 |   | $ | 1.21 |   |
| Diluted                                                                                                                                                                                                                                                                               |       | $                                               | 0.67       |                                          | $          | 0.63 |   | $ | 1.18 |   | $ | 1.21 |   |
| **WEIGHTED AVERAGE COMMON SHARES  OUTSTANDING:**                                                                                                                                                                                                                                      | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                                                                                                                                 |       | 15,217                                          |       | 15,232                                        |       | 15,223 |   | 15,231 |   |
| Diluted                                                                                                                                                                                                                                                                               |       | 15,260                                          |       | 15,282                                        |       | 15,274 |   | 15,267 |   |
| **DIVIDENDS PER SHARE APPLICABLE  TO COMMON STOCK**                                                                                                                                                                                                                                   |       | $                                               | 0.16       |                                          | $          | 0.18 |   | $ | 0.32 |   | $ | 0.36 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2009**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                                             | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2008**                                      | ** ** | **2009** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                             | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net income                                                                                             |       | $                                             | 20,445     |   | $ | 18,981 |   |
| Adjustments to reconcile net income to net cash  flows provided by operating activities:               |       |                                          |       |   |   |
| Depreciation and amortization                                                                          |       | 14,501                                        |       | 18,994 |   |
| Provision for doubtful accounts                                                                        |       | 784                                           |       | 767 |   |
| Amortization of debt discount and debt issuance  costs                                                 |       | 59                                            |       | 255 |   |
| Stock-based compensation                                                                               |       | 549                                           |       | 656 |   |
| Deferred income taxes                                                                                  |       | 400                                           |       | 398 |   |
| Equity in earnings of unconsolidated affiliates                                                        |       | (735                                          | )          | — |   |
| Dividends received from Bermuda Digital Communications,  Ltd.                                          |       | 1,106                                         |       | — |   |
| Changes in operating assets and liabilities,  excluding the effects of acquisitions:                   |       |                                          |       |   |   |
| Accounts receivable                                                                                    |       | (2,297                                        | )          | (4,448 | ) |
| Materials and supplies, prepayments, and other  current assets                                         |       | (52                                           | )          | 651 |   |
| Prepaid income taxes                                                                                   |       | —                                        |       | 10,708 |   |
| Accounts payable and accrued liabilities, advance  payments and deposits and other current liabilities |       | (1,787                                        | )          | (2,144 | ) |
| Accrued taxes                                                                                          |       | (8,728                                        | )          | 902 |   |
| Other                                                                                                  |       | (4,905                                        | )          | 162 |   |
| Net cash provided by operating activities                                                              |       | 19,340                                        |       | 45,882 |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                             | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Capital expenditures                                                                                   |       | (20,900                                       | )          | (27,541 | ) |
| Acquisitions of businesses, net of cash acquired  of $5,154 and $0, respectively                       |       | (11,924                                       | )          | (24 | ) |
| Purchase of short-term marketable securities                                                           |       | (120                                          | )          | — |   |
| Maturity of short-term marketable securities                                                           |       | —                                        |       | 2,956 |   |
| Decrease in restricted cash                                                                            |       | 4,831                                         |       | — |   |
| Net cash used in investing activities                                                                  |       | (28,113                                       | )          | (24,609 | ) |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                             | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Dividends paid on common stock                                                                         |       | (4,867                                        | )          | (5,483 | ) |
| Distributions to non-controlling interests                                                             |       | (1,620                                        | )          | (5,120 | ) |
| Repayments of long-term debt                                                                           |       | —                                        |       | (376 | ) |
| Investments made by non-controlling interests                                                          |       | —                                        |       | 200 |   |
| Proceeds from stock option exercises                                                                   |       | 304                                           |       | 74 |   |
| Purchase of common stock                                                                               |       | (1,164                                        | )          | (23 | ) |
| Net cash used in financing activities                                                                  |       | (7,347                                        | )          | (10,728 | ) |
| **NET CHANGE IN CASH AND CASH  EQUIVALENTS**                                                           |       | (16,120                                       | )          | 10,545 |   |
| **CASH AND CASH EQUIVALENTS,  beginning of the period**                                                |       | 71,173                                        |       | 79,665 |   |
| **CASH AND CASH EQUIVALENTS, end  of the period**                                                      |       | $                                             | 55,053     |   | $ | 90,210 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1. ORGANIZATION AND BUSINESS OPERATIONS**

 

Atlantic Tele-Network, Inc.(“ATN” or “Company”) provides wireless and wireline telecommunication servicesin the Caribbean and North America through the following operatingsubsidiaries:

 

·                  Commnet Wireless, LLC (“Commnet”),an owner and operator of wholesale wireless networks in rural areas of theUnited States. Commnet provides wireless voice and data communications roamingservices principally to national, regional and local wireless carriers. Commnetgenerated approximately 33% and 43% of the Company’s consolidated revenues forthe three months ended June 30, 2008 and 2009, respectively. ATN acquired Commnetin 2005 and currently owns 100% of Commnet’s equity.

 

·                  Guyana Telephone & TelegraphCompany, Ltd. (“GT&T”), the national and international telephonecompany in the Republic of Guyana and the largest wireless service provider inthat country. The Company has owned 80% of the stock of GT&T since January 1991.GT&T generated approximately 49% and 38% of the Company’s consolidatedrevenues for the three months ended June 30, 2008 and 2009, respectively.The reduction in these percentages is principally due to the acquisitions notedbelow and the growth in those acquired operations.

 

·                  Bermuda Digital Communications, Ltd.(“BDC”), a leading wireless voice and data communications service provider inBermuda, doing business under the name “Cellular One”. The Company acquired anequity interest in, and signed a management contract with, BDC in 1998. On May 15,2008, BDC completed a share repurchase of its common stock. ATN did not tenderany shares for repurchase, and, as a result of the transaction, increased itsholdings from approximately 43% to approximately 58% of BDC’s outstanding commonstock. Prior to this increase in holdings, the Company accounted for itsinvestment in BDC under the equity method and earnings from BDC did not appearin its income from operations, but were instead reflected in equity in earningsof unconsolidated affiliates. Effective with the completion of that sharerepurchase, the Company began consolidating BDC’s balance sheet and results ofoperations. In September 2008, BDC began providing wireless services inTurks and Caicos through Islandcom Telecommunications, Ltd.

 

·                  Sovernet, Inc. (“Sovernet”), afacilities-based integrated voice, broadband data communications and dial-upservice provider in New England and New York State. Sovernet’s retailtelecommunications service is delivered to business and residential customersin Vermont and New Hampshire. The Company has owned 96% of Sovernet since itsacquisition in February 2006. Through an acquisition made in 2008,Sovernet also delivers wholesale transport services in New York State throughits subsidiary, ION.

 

·                  Choice Communications, LLC (“Choice”),a leading provider of fixed and portable wireless broadband data and dial-upinternet services to retail and business customers in the U.S. Virgin Islands.Choice is a wholly owned subsidiary of the Company.  Choice discontinuedits wireless television service on May 31, 2009 to focus mainly onproviding wireless broadband data services. ATN acquired Choice in 1999 andowns 100% of Choice’s equity.

 

ATN provides management,technical, financial, regulatory, and marketing services for its subsidiariesand receives a management fee equal to approximately 3% to 6% of theirrespective revenues. Management fees from consolidated subsidiaries areeliminated in consolidation. Management fees from unconsolidated affiliates in2008 are included in “Other Income” in the accompanying statements ofoperations.

 

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**2. BASIS OF PRESENTATION**

 

The accompanyingcondensed consolidated financial statements have been prepared by the Companypursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”). The financial information included herein is unaudited;however, the Company believes such information and the disclosures herein areadequate to make the information presented not misleading and reflect alladjustments (consisting only of normal recurring adjustments) that arenecessary for a fair statement of the Company’s financial position and resultsof operations for such periods. The year-end condensed balance sheet data wasderived from audited financial statements, but does not include all disclosuresrequired by accounting principles generally accepted in the United States ofAmerica.  Results of interim periods may not be indicative of resultsfor the full year.  These condensed consolidated financial statements andrelated notes should be read in conjunction with the Company’s 2008 AnnualReport on Form 10-K.

 

***Consolidation***

 

The consolidatedfinancial statements include the accounts of the Company, its majority-ownedsubsidiaries and certain entities, which are consolidated in accordance withthe provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46,“Consolidation of Variable Interest Entities, an interpretation on AccountingResearch Bulletin No. 51”, as revised in December 2003 (“FIN No. 46R”)since it is determined that the Company is the primary beneficiary of theseentities. Revenue from these entities constitutes less than 1% of total Companyrevenue.

 

***Reclassifications***

 

In December 2007,the FASB issued SFAS No. 160, Non-controlling Interests in ConsolidatedFinancial Statements — an amendment of ARB No. 51 (“SFAS No. 160”).  SFASNo. 160 requires (i) that non-controlling (minority) interests bereported as a component of stockholders’ equity, (ii) that net income attributableto the parent and the non-controlling interest be separately identified in theconsolidated statements of operations, (iii) that changes in a parent’sownership interest while the parent retains the controlling interest beaccounted for as equity transactions, (iv) that any retainednon-controlling equity investment upon the deconsolidation of a subsidiary beinitially measured at fair value, and (v) that sufficient disclosures areprovided that clearly identify and distinguish between the interests of theparent and the interests of the non-controlling owners.  The Companyadopted the provisions of SFAS No. 160 in the first quarter of2009.  As a result of the adoption, the Company has reportednon-controlling interests as a component of equity in the condensedconsolidated balance sheets and the net income attributable to non-controllinginterests has been separately identified in the condensed consolidatedstatement of operations.  The prior period presented have also beenreclassified to conform to the current classification required by SFAS No. 160.

 

***Recent Accounting Pronouncements***

 

**RecentlyAdopted Standards**

 

In May 2009, theFinancial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standard (SFAS) No. 165, *SubsequentEvents* (“SFAS 165”). SFAS 165 establishes the standards ofaccounting for and disclosure of events that occur after the balance sheet datebut before financial statements are issued. This Statement also requires thedisclosure of the date through which subsequent events have been evaluated. TheCompany adopted this standard, as required, for the period ended June 30,2009. Adoption of SFAS 165 did not have a material impact on the Company’sconsolidated financial statements.

 

In April 2009, theFASB issued FASB Staff Position (“FSP”) FAS 115-2 and FAS 124-2, *Recognition and Presentation of Other-Than-TemporaryImpairments*(“FSP FAS 115-2”).  FSP FAS 115-2 requires therecognition of an other-than-temporary impairment when an entity has the intentto sell a debt security or when it is more likely than not that an entity willbe required to sell the debt security before its anticipated recovery in value.Additionally, FSP FAS 115-2 changes the presentation and amount ofother-than-temporary impairment losses recognized in the income statement forinstances in which the Company does not intend to sell or it is more likelythan not that the Company will not be required to sell a debt security prior tothe anticipated recovery of its remaining cost basis.  In addition to thechanges in measurement and presentation, FSP FAS 115-2 expands the disclosuresrelated to other-than-temporary impairments and requires all such disclosuresto be included in both interim and annual periods.  The provisions of FSP FAS 115-2 wereeffective for the three month period ended June, 30, 2009.  The adoptionof FSP FAS 115-2 did not have a material impact on the Company’s consolidated financial statements.

 

In April 2009, theFASB issued FSP FAS 157-4, *Determining FairValue When the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly*(“FSPFAS 157-4”).  FSP FAS 157-4 provides guidance for determining when atransaction is not orderly and for estimating fair value in accordance withFASB Statement No. 157, *Fair ValueMeasurements*(“FAS 157”)*,*whenthere has been a significant decrease in the volume and level of activity foran asset or liability.  FSP FAS 157-4requires the disclosure of the inputs and valuation techniques used, as well asany changes in valuation techniques and inputs used during the period, tomeasure fair value in interim and annual periods. In addition, FSP FAS 157-4requires that the presentation of the fair value hierarchy be presented bymajor security type as described in FASB Statement No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*(as amended by FSP FAS 115-2).  The adoption of FSP FAS 157-4 in three monthperiod ended June, 30, 2009 did not have a material impact on the Company’sconsolidated financial statements.

 

EffectiveJanuary 1, 2009, the Company adopted the provisions of SFAS No. 141(revised 2007), *Business Combinations — a replacement ofFASB Statement No. 141* (“SFAS 141(R)”), which replaces SFAS No. 141,*Business Combinations* (“SFAS 141”). Although SFAS 141(R) retains the underlying concept of SFAS 141 in thatall business combinations are still required to be accounted for at fair valuein accordance with the acquisition method, SFAS 141(R)  requires theCompany to revise its application of the acquisition method in a number ofsignificant aspects such as requiring the Company to expense transaction costsand  to recognize 100% of the acquiree’s assets and liabilities ratherthan a proportional share for acquisitions of less than 100% of abusiness.  In addition, SFAS 141(R) eliminates the step acquisitionmodel and provides that all business combinations, whether full, partial, orstep acquisitions, results in all assets and liabilities of an acquiredbusiness being recorded at their fair values at the acquisition date.  The impact of SFAS 141(R) on theCompany’s financial statements will be dependent upon the number of andmagnitude of the acquisitions that are consummated.

 

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In April 2009,the FASB issued FSP FAS 141(R)-1, *Accounting for Assets andLiabilities Assumed in a Business Combination That Arise from Contingencies*(“FSP FAS 141(R)-1”), which amends the initial and subsequent measurementguidance and disclosure requirements in SFAS 141(R) for assets andliabilities arising from contingencies in a business combination. FSP FAS141(R)-1 is effective on a prospective basis for all business combinations forwhich the acquisition date is on or after January 1, 2009.

 

In January 2009,the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”) 28-1, *Interim Disclosures about Fair Value of FinancialInstruments* (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB28-1 amend SFAS No. 107, *Disclosuresabout Fair Values of Financial Instruments*, to require disclosuresabout fair value of financial instruments in interim financial statements aswell as in annual financial statements. Additionally, FSP FAS 107-1 and APB28-1 also amend APB Opinion No. 28, *InterimFinancial Reporting*, to require those disclosures in all interimfinancial statements. The Company adopted this standard, as required, for theperiod ended June 30, 2009. Adoption of FSP FAS 107-1 and APB 28-1 did nothave a material impact on the Company’s consolidated financial statements.

 

**Standardsto be Adopted**

 

In December 2008,the FASB issued an FSP on SFAS No. 132(R)-1, *Employers’ Disclosures about Postretirement Benefit Plan Assets*(“FSP SFAS 132(R)-1”). FSP SFAS 132(R)-1 provides additional guidanceon an employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. The adoption of this interpretation will increasethe disclosures in the financial statements related to the assets of anemployers’ defined benefit pension plan. FSP SFAS 132(R)-1 is effective in2010. The Company does not anticipate that FSP SFAS 132(R)-1 will have amaterial impact on the consolidated financial statements.

 

In June 2009,the FASB issued SFAS No. 167, *Amendments to FASBInterpretation No. 46(R) *(“SFAS 167”). This Statementamends certain guidance in FIN 46(R) for determining whether an entity isa variable interest entity (VIE). SFAS 167 requires an enterprise to perform ananalysis to determine whether the Company’s variable interests give it acontrolling financial interest in a VIE. A company would be required to assesswhether it has an implicit financial responsibility to ensure that a VIEoperates as designed when determining whether it has the power to direct theactivities of the VIE that most significantly impact the entity’s economicperformance. In addition, this Statement amends FIN 46(R) to require ongoingreassessments of whether an enterprise is the primary beneficiary of a VIE.SFAS 167 is effective for the Company for fiscal year 2011. The Company doesnot anticipate that FSP SFAS 132(R)-1 will have a material impact on theconsolidated financial statements.

 

In June 2009, theFASB issued SFAS No. 168, *The FASB AccountingStandards Codification**TM** and the Hierarchy of Generally AcceptedAccounting Principles — a replacement of FASB Statement No. 162***(“Codification”). The Codification doesnot change current U.S. GAAP but reorganizes all authoritative literature inone place. This Statement is effective for financial statements issued forinterim and annual periods ending after September 15, 2009. Onceeffective, the Codification will supersede existing GAAP and become the sourceof authoritative accounting principles recognized by the FASB. This Statementonly requires a change in disclosure and will not impact the Company’sconsolidated financial statements.

 

**3. USE OF ESTIMATES**

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the dates of the financial statements andthe reported amounts of revenues and expenses during the reporting periods. Themost significant estimates relate to allowance for doubtful accounts, usefullives of the Company’s fixed and finite-lived intangible assets, allocation ofpurchase price to assets acquired and liabilities assumed in purchase businesscombinations, fair value of indefinite-lived intangible assets, goodwill andincome taxes. Actual results could differ significantly from those estimates.

 

**4. PENDING ACQUISTION- ALLTEL ASSETS**

 

On June 9, 2009, theCompany entered into a Purchase Agreement (the “Purchase Agreement”) withCellco Partnership d/b/a Verizon Wireless (“Verizon”) to acquire wirelessassets previously acquired by Verizon in its acquisition of Alltel Corporationin certain, primarily rural, markets in Georgia, North Carolina, SouthCarolina, Illinois, Ohio and Idaho. Pursuant to the terms of the PurchaseAgreement, Verizon will cause certain licenses, network assets, tower and otherleases, and other assets and certain related liabilities to be contributed to anewly formed, wholly-owned subsidiary limited liability company, whosemembership interests will 

 

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be acquired by theCompany for a purchase price of approximately $200 million (the “AlltelAcquisition”). Verizon is required to divest these assets under consent decreesit entered into with the U.S. Department of Justice related to its purchase ofAlltel Corporation earlier this year.

 

The parties have agreedto a variety of customary covenants and agreements, including with respect toconfidentiality, cooperation (including with respect to regulatory matters),the conduct of the business to be acquired in the ordinary course consistentwith past practice and other restrictions on the operation of such businessprior to the consummation of the Alltel Acquisition, public announcements andsimilar matters. Consummation of the Alltel Acquisition is subject to thesatisfaction of certain conditions, including, among others, (i) thereceipt of the United States Department of Justice’s approval of the AlltelAcquisition, (ii) the receipt of all required consents of the FederalCommunications Commission to the transfer, assignment or change in control ofcertain licenses pursuant to the Alltel Acquisition, (iii) the receipt ofrequired consents from state public utility commissions, if any, and (iv) theabsence of any injunction or final judgment prohibiting the consummation of theAlltel Acquisition. Consummation of the Alltel Acquisition is not subject toany financing condition. The Company currently expects to amend and expand itsexisting credit facility to fund a majority of the acquisition’s purchaseprice. The remaining portion of the purchase price is expected to be fundedwith cash on hand.

 

**5. FAIR VALUE MEASUREMENTS**

 

The Company’sfinancial instruments at June 30, 2009 included cash and cash equivalents,short term investments, accounts receivable, accounts payable, debt and aninterest rate swap agreement. As of June 30, 2009, the estimated fairvalues of all of the Company’s financial instruments approximate their carryingvalues.

 

SFAS 157 providesa framework for measuring fair value and requires expanded disclosuresregarding fair value measurements. SFAS 157 defines fair value as the pricethat would be received for an asset or the exit price that would be paid totransfer a liability in the principal or most advantageous market in an orderlytransaction between market participants on the measurement date. SFAS 157 alsoestablishes a fair value hierarchy that requires an entity to maximize the useof observable inputs, where available. The following summarizes the threelevels of inputs required by SFAS 157, as well as the assets and liabilitiesthat we value using those levels of inputs.

 

The followingtable presents information (in thousands) about our monetary assets andliabilities that are measured and recorded at fair value on a recurring basisas of June 30, 2009, and indicates the fair value hierarchy of thevaluation and recorded

 

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techniques we utilized todetermine such fair value. In general, fair values determined by Level 1inputs utilize quoted prices (unadjusted) in active markets for identicalassets or liabilities. Fair values determined by Level 2 inputs utilizedata points that are observable such as quoted prices, interest rates and yieldcurves. Fair values determined by Level 3 inputs are unobservable datapoints for the asset or liability, and includes situations where there islittle, if any, market activity for the asset or liability. As of June 30,2009, the Company did not have any Level 3 assets or liabilities.

 
| **Description**                               | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs********(Level 3)** | ** ** | **Total** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------|------------|
| Money market funds                            |       | $                                                                   | 11,763     |                                                               | $          | —                                                          |       | $         | —     |   | $ | 11,763 |   |
| Certificates of deposit                       |       | —                                                              |       | 10,400                                                             |       | —                                                          |       | 10,400    |       |
| **Total assets measured at fair  value**      |       | $                                                                   | 11,763     |                                                               | $          | 10,400                                                          |       | $         | —     |   | $ | 22,163 |   |
|                                          |       |                                                                |       |                                                               |       |                                                            |       |      |       |
| Interest rate swap (Note 7)                   |       | $                                                                   | —     |                                                               | $          | 4,830                                                           |       | $         | —     |   | $ | 4,830 |   |
| **Total liabilities measured at  fair value** |       | $                                                                   | —     |                                                               | $          | 4,830                                                           |       | $         | —     |   | $ | 4,830 |   |

 

**6. LONG-TERM DEBT**

 

Long-term debt comprisesthe following (in thousands):

 
| ** **                          | ** ** | **December 31,  2008** | ** ** | **June 30,  2009** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Note payable- $75 million term loan |       | $                           | 74,625     |                    | $          | 74,250 |   |
| Less: current portion               |       | (750                        | )          | (750                    | )          |
| Total long-term debt                |       | 73,875                      |       | 73,500                  |       |
| Less: debt discount                 |       | (564                        | )          | (522                    | )          |
| Net carrying amount                 |       | $                           | 73,311     |                    | $          | 72,978 |   |

 

***2008 Loan Facility***

 

On September 10,2008, the Company, as borrower, entered into a credit agreement with CoBank,ACB and other lenders as referenced within the credit agreement (the “2008CoBank Credit Agreement”). The 2008 CoBank Credit Agreement replaced the 2005Credit Agreement and provides a $75 million term loan (the “2008 Term Loan”)as well as a $75 million revolving credit facility (the “2008 RevolverFacility”, and together with the 2008 Term Loan, the “2008 Credit Facility”).The 2008 CoBank Credit Agreement also provides, subject to lender consent, additionalterm loan borrowing capacity of up to $50 million with identical terms as the2008 Term Loan.

 

The2008 Term Loan matures on September 10, 2015 and requires quarterlyrepayments of principal of $0.2 million through June 30, 2013 andquarterly repayments of principal of $1.4 million from September 30,2013 to June 30, 2015. The remaining outstanding principal balance is tobe repaid on September 10, 2015 when the 2008 Term Loan matures.

 

The2008 Revolver Facility matures on September 10, 2014 and includes a$5 million letter of credit facility. At June 30, 2009, no amountshave been drawn under the 2008 Revolver Facility.

 

Allborrowings under the 2008 Credit Facility bear interest at a rate, selected bythe Company from one of the options set forth in the agreement, plus a margin.Such interest rate options include i) a base rate, defined as the greaterof the prime rate or the federal funds rate plus 0.5%, or ii) a LIBORrate. Margins for base rate borrowings range from 0% to 0.5%, depending upon theCompany’s leverage ratio, while margins for LIBOR borrowings range from 1.25%to 2% also depending upon the Company’s leverage ratio. Borrowings as of June 30,2009, including the interest rate swap agreement discussed in Note 7, werebearing a weighted-average interest rate of 5.23%.

 

The2008 Credit Facility is guaranteed by the Company’s Commnet, Sovernet andChoice subsidiaries, along with certain of the Company’s other domesticsubsidiaries, and is collateralized by a security interest in substantially allof the assets of the Company and the guarantor subsidiaries, including Commnet,Sovernet and Choice, and a pledge of the stock of certain of the Company’sdirect and indirect, domestic and foreign, subsidiaries, including itsprincipal operating subsidiaries, and stock owned by the Company.

 

The2008 CoBank Credit Agreement contains certain affirmative and negativecovenants of the Company and its subsidiaries. Among other things, thesecovenants restrict the Company’s ability to incur additional debt in the futureor to incur liens on its property. The 2008 Credit Agreement also requires theCompany to maintain certain financial ratios including a net leverage ratio of

 

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less than or equal to 3.0to 1, an interest coverage ratio of greater than or equal to 3.5 to 1 and anequity to assets ratio of greater than or equal to 0.4 to 1. As of June 30,2009, the Company was in compliance with all of the financial covenants of the2008 CoBank Credit Agreement.

 

SeeNote 7 for a discussion regarding the Company’s interest rate swap thatcorresponds to a portion of our variable rate debt in order to effectivelyhedge interest rate risk.  In conjunctionwith the acquisition of the Verizon Wireless assets, the Company expects to amendand expand its existing credit facility to fund a majority of the acquisition’spurchase price.

 

**7.DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**

 

Asrequired by SFAS 133, the Company records all derivatives on the balance sheetat fair value.  The accounting for changes in the fair value ofderivatives depends on the intended use of the derivative, whether the Companyhas elected to designate a derivative in a hedging relationship and apply hedgeaccounting and whether the hedging relationship has satisfied the criterianecessary to apply hedge accounting. Derivatives designated and qualifying as ahedge of the exposure to changes in the fair value of an asset, liability, orfirm commitment attributable to a particular risk, such as interest rate risk,are considered fair value hedges. Derivatives designated and qualifying as ahedge of the exposure to variability in expected future cash flows, or othertypes of forecasted transactions, are considered cash flow hedges. Hedgeaccounting generally provides for the matching of the timing of gain or lossrecognition on the hedging instrument with the recognition of the changes inthe fair value of the hedged asset or liability that are attributable to thehedged risk in a fair value hedge or the earnings effect of the hedgedforecasted transactions in a cash flow hedge.  The Company may enter intoderivative contracts that are intended to economically hedge certain of itsrisk, even though hedge accounting does not apply or the Company elects not toapply hedge accounting under SFAS 133.

 

***Risk Management Objective of Using Derivatives***

 

The Company isexposed to certain risk arising from both its business operations and economicconditions.  The Company principally manages its exposures to a widevariety of business and operational risks through management of its corebusiness activities. The Company manages economic risks, including interest rate,liquidity, and credit risk primarily by managing the amount, sources, andduration of its debt funding and the use of derivative financialinstruments.  Specifically, the Company enters into derivative financialinstruments to manage exposures that arise from business activities that resultin the receipt or payment of future known and uncertain cash amounts, the valueof which are determined by interest rates.  The Company’s derivativefinancial instruments are used to manage differences in the amount, timing, andduration of the Company’s known or expected cash receipts and its known orexpected cash payments principally related to the Company’s investments andborrowings.

 

***Cash Flow Hedges of Interest Rate Risk***

 

The Company’sobjectives in using interest rate derivatives are to add stability to interestexpense and to manage its exposure to interest rate movements. To accomplishthis objective, the Company primarily uses interest rate swaps as part of itsinterest rate risk management strategy.  Interest rate swaps designated ascash flow hedges involve the receipt of variable-rate amounts from acounterparty in exchange for the Company making fixed-rate payments over thelife of the agreements without exchange of the underlying notional amount.

 

The effectiveportion of changes in the fair value of interest rate swaps designated and thatqualify as cash flow hedges is recorded in Accumulated Other ComprehensiveIncome and is subsequently reclassified into earnings in the period that thehedged forecasted transaction affects earnings. During the three months and sixmonths ended June 30, 2009, a derivative was used to hedge the variablecash flows associated with existing variable-rate debt.  The ineffectiveportion of the change in fair value of the derivatives is recognized directlyin earnings. No hedge ineffectiveness was recognized during the three and sixmonths ended June 30, 2009.

 

Amounts reportedin accumulated other comprehensive income related to interest rate swaps willbe reclassified to interest expense as interest payments are made on theCompany’s variable-rate debt.  ThroughJune 30, 2010, the Company estimates that an additional $2.5 million will bereclassified as an increase to interest expense due to the interest rate swapsince the hedge interest rate exceeds the variable interest rate on the debt..

 

As of June 30,2009, the Company’s sole derivative instrument was an interest rate swap with anotional amount of $68 million that was designated as a cash flow hedge ofinterest rate risk.

 

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The table belowpresents the fair value of the Company’s derivative financial instruments aswell as their classification on the consolidated balance sheet as of June 30,2009 (in thousands).

 
| ** **                                                          | ** ** | **Liability Derivatives**              | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                          | ** ** | **as of June 30, 2009** | ** ** |
| ** **                                                          | ** ** | **Balance Sheet  Location**            | ** ** | **Fair Value** | ** ** |
| Derivatives designated as hedging instruments  under SFAS 133:      |       |                                        |       |   |   |
| Interest Rate Swap                                                  |       | Other  long-term liabilities                |       | $ | 4,830 |   |
| Total derivatives designated as hedging  instruments under SFAS 133 |       |                                        |       | $ | 4,830 |   |

 

The tables belowpresent the effect of the Company’s derivative financial instruments on thestatement of operations for the three months ended June 30, 2009 (inthousands):

 
| **Derivatives in SFAS  133 Cash Flow  Hedging  Relationships** | ** ** | **Amount of  Gain or  (Loss)  Recognized  in OCI on  Derivative   (Effective  Portion)** | ** ** | **Location of Gain or  (Loss) Reclassified  from Accumulated  OCI into Income  (Effective Portion)** | ** **        | **Amount of  Gain or  (Loss)  Reclassified  from  Accumulated  OCI into  Income  (Effective  Portion)** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|-------------------|------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                               |       |                                                                                                              |       |                                                                                                                                         |              |                                                                                                                   |       |
| Interest Rate Swap                                                                 |       | $                                                                                                                 | 2,411      |                                                                                                                                         | Interest  expense |                                                                                                                   | $          | 690 |   |
|                                                                                    |            |                                                                                                                   |            |                                                                                                                                              |                   |                                                                                                                        |            |  |  |

 

The tables belowpresent the effect of the Company’s derivative financial instruments on thestatement of operations for the six months ended June 30, 2009 (inthousands):

 
| **Derivatives in SFAS  133 Cash Flow  Hedging  Relationships** | ** ** | **Amount of  Gain or  (Loss)  Recognized  in OCI on  Derivative   (Effective  Portion)** | ** ** | **Location of Gain or  (Loss) Reclassified  from Accumulated  OCI into Income  (Effective Portion)** | ** **        | **Amount of  Gain or  (Loss)  Reclassified  from  Accumulated  OCI into  Income  (Effective  Portion)** |   |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|-------------------|------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                               |       |                                                                                                              |       |                                                                                                                                         |              |                                                                                                                   |   |
| Interest Rate Swap                                                                 |       | $                                                                                                                 | 3,091      |                                                                                                                                         | Interest  expense |                                                                                                                   | $      | 1,349 |   |
|                                                                                    |            |                                                                                                                   |            |                                                                                                                                              |                   |                                                                                                                        |        |  |  |

 

***Credit-risk-related Contingent Features***

 

The Company hasagreements with each of its derivative counterparties that contain a provisionwhere if the Company defaults on any of its indebtedness,including default where repayment of the indebtedness has not beenaccelerated by the lender, then the Company could also be declared indefault on its derivative obligations.

 

As of June 30,2009, the fair value of the interest rate swap liability position, related tothese agreements was $4.8 million.  As of June 30, 2009, the Companyhas not posted any collateral related to this agreement. If the Company hadbreached any of these provisions at June 30, 2009, it would have beenrequired to settle its obligation under the agreement at its termination valueof $5.3 million.

 

**8. RECONCILIATION OF TOTAL EQUITY**

 

Total equity was asfollows (in thousands):

 
| ** **                                                           | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                           | ** ** | **2008**                                          | ** ** | **2009** | ** ** |
| ** **                                                           | ** ** | **Atlantic Tele-  Network, Inc.**       | ** ** | **Non-Controlling  Interests** | ** ** | **Total Equity** | ** ** | **Atlantic Tele-  Network, Inc.** | ** ** | **Non-Controlling  Interests** | ** ** | **Total  Equity** | ** ** |
| Equity,  beginning of period                                         |       | $                                                 | 208,971    |   | $ | 27,236 |   | $ | 236,207 |   | $ | 228,873 |   | $ | 32,787 |   | $ | 261,660 |   |
| Stock  based compensation                                            |       | 549                                               |       | — |   | 549 |   | 656 |   | — |   | 656 |   |
| Comprehensive  income:                                               |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Net  income                                                          |       | 18,071                                            |       | 2,374 |   | 20,445 |   | 18,438 |   | 543 |   | 18,981 |   |
| Other  comprehensive income- Gain on interest rate swap (net of tax) |       | —                                            |       |   |   | — |   | 1,897 |   | — |   | 1,897 |   |
| Total  comprehensive income                                          |       | 227,591                                           |       | 29,610 |   | 257,201 |   | 249,864 |   | 33,330 |   | 283,194 |   |
| Issuance  of common stock upon exercise of stock options             |       | 304                                               |       | — |   | 304 |   | 74 |   | — |   | 74 |   |
| Dividends  on common stock                                           |       | (4,867                                            | )          | (1,620 | ) | (6,487 | ) | (5,483 | ) | (5,118 | ) | (10,601 | ) |
| Investments  made by minority shareholders                           |       | —                                            |       | — |   | — |   | — |   | 200 |   | 200 |   |
| Purchase  of common shares                                           |       | (1,164                                            | )          | — |   | (1,164 | ) | (23 | ) | — |   | (23 | ) |
| Issuance  of common shares                                           |       | 102                                               |       | — |   | 102 |   | — |   | — |   | — |   |
| Non-controlling  interest in entity acquired                         |       | —                                            |       | 1,537 |   | 1,537 |   | — |   | — |   | — |   |
|                                                                 |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Equity,  end of period                                               |       | $                                                 | 221,966    |   | $ | 29,527 |   | $ | 251,493 |   | $ | 244,432 |   | $ | 28,412 |   | $ | 272,844 |   |

 

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**9.  STOCK-BASEDCOMPENSATION**

 

During the three monthsended June 30, 2008 and 2009, the Company recognized $0.3 million and $0.4million, respectively, of non-cash compensation expense relating to grantsunder the 1998 Stock Option Plan, the 2005 Restricted Stock and Incentive Planand the 2008 Equity Incentive Plan (the “Share Based Plans”).  During the six months ended June 30,2008 and 2009, the Company recognized $0.5 million and $0.7 million,respectively, of non-cash compensation expense relating to grants under theShare Based Plans.

 

**10. NET INCOME PER SHARE**

 

For the three and sixmonths ended June 30, 2008 and 2009, outstanding stock options were theonly potentially dilutive securities.

 

The reconciliation frombasic to diluted weighted average common shares outstanding is as follows (inthousands):

 
| ** **                                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                        | ** ** | **2009**                                      | ** ** | **2008** | ** ** | **2009** | ** ** |
| Basic  weighted average common shares outstanding   |       | 15,217                                          |       | 15,232                                        |       | 15,223 |   | 15,231 |   |
| Stock  options                                      |       | 43                                              |       | 50                                            |       | 51 |   | 36 |   |
| Diluted  weighted average common shares outstanding |       | 15,260                                          |       | 15,282                                        |       | 15,274 |   | 15,267 |   |

 

The above calculation forthe three months ended June 30, 2008 and 2009 does not include 434,000 and323,000 shares, respectively, related to certain stock options because theeffects of such were anti-dilutive.  Forthe six months ended June 30, 2008 and 2009, the calculation does notinclude 416,000 and 349,000 shares, respectively, related to certain stockoptions because the effect of such options were anti-dilutive.

 

**11. SEGMENT REPORTING**

 

The Company hasfive reportable segments for separate disclosure under SFAS No. 131, *Disclosures About Segments of an Enterprise andRelated Information.* Those five segments are: i) IntegratedTelephony-International, which generates all of its revenues in Guyana and hasall of its assets located in Guyana, ii) Rural Wireless, which generatesall of its revenues in the United States and has all of its assets located inthe United States, iii) Island Wireless, which generates its revenues inand has its assets in Bermuda and Turks and Caicos, iv) IntegratedTelephony-Domestic, which generates all of its revenues and has all of itsassets located in the United States and v) Wireless Data, which generatesall of its revenues in and has all of its assets located in the U.S VirginIslands. The operating segments are managed separately because each offersdifferent services and serves different markets.

 

Island Wirelessbecame a reportable segment upon completion of BDC’s share repurchase andresulting increase in the Company’s equity interest in BDC, effective May 15,2008.  As described above, effective May 31, 2009, the Companydiscontinued providing wireless televisions services, and therefore has changedthe name of its segment from “Wireless Television and Data” to “Wireless Data”.The Company determined that these operations were immaterial for reporting asdiscontinued operations in the Company’s financial statements.

 

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The followingtables, which for 2008 have been conformed to the 2009 presentation, provideinformation for each operating segment (in thousands):

 
| ** **                        | ** ** | **For the Three Months Ended June 30, 2008** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                       | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                               | 24,687     |   | $ | 16,863 |   | $ | 2,966 |   | $ | 3,730 |   | $ | 2,168 | (1) | $ | — |   | $ | 50,414 |   |
| Depreciation and amortization     |       | 4,163                                                                           |       | 2,215 |   | 275 |   | 422 |   | 275 |   | 74 |   | 7,424 |   |
| Non-cash stock-based compensation |       | —                                                                          |       | — |   | — |   | 32 |   | — |   | 245 |   | 277 |   |
| Operating income (loss)           |       | 10,817                                                                          |       | 8,429 |   | 938 |   | 553 |   | (385 | ) | (2,294 | ) | 18,058 |   |
|                                   |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For  the Three Months Ended June 30, 2009** | ** ** |
|-----------------------------------|------------|----------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**          | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                  | 22,696     |   | $ | 25,800 |   | $ | 5,531 |   | $ | 4,728 |   | $ | 1,540 | (1) | $ | — |   | $ | 60,295 |   |
| Depreciation and amortization     |       | 4,197                                              |       | 3,614 |   | 763 |   | 680 |   | 466 |   | 74 |   | 9,794 |   |
| Non-cash stock-based compensation |       | —                                             |       | — |   | — |   | 32 |   | — |   | 323 |   | 355 |   |
|                              |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)           |       | 8,762                                              |       | 13,463 |   | 226 |   | (234 | ) | (1,163 | ) | (2,942 | ) | 18,112 |   |
|                                   |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For the Six  Months Ended June 30, 2008** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                 | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                         | 49,890     |   | $ | 31,406 |   | $ | 2,966 |   | $ | 7,430 |   | $ | 4,352 | (1) | $ | — |   | $ | 96,044 |   |
| Depreciation and amortization     |       | 8,347                                                                     |       | 4,206 |   | 275 |   | 850 |   | 673 |   | 150 |   | 14,501 |   |
| Non-cash stock-based compensation |       | —                                                                    |       | — |   | — |   | 63 |   | — |   | 486 |   | 549 |   |
| Operating income (loss)           |       | 21,706                                                                    |       | 15,178 |   | 938 |   | 1,133 |   | (806 | ) | (4,437 | ) | 33,712 |   |
|                                   |            |                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For the Six Months Ended June 30, 2009** | ** ** |
|-----------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                     | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                             | 45,430     |   | $ | 47,439 |   | $ | 10,698 |   | $ | 9,338 |   | $ | 3,356 | (1) | $ | — |   | $ | 116,261 |   |
| Depreciation and amortization     |       | 8,380                                                                         |       | 6,849 |   | 1,474 |   | 1,399 |   | 744 |   | 148 |   | 18,994 |   |
| Non-cash stock-based compensation |       | —                                                                        |       | — |   | — |   | 63 |   | — |   | 593 |   | 656 |   |
| Operating income (loss)           |       | 18,080                                                                        |       | 23,715 |   | 436 |   | (729 | ) | (1,726 | ) | (4,887 | ) | 34,889 |   |
|                                   |            |                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)   Includes$1.0 million and $0.4 million of wireless television services for the threemonths ended June 30, 2008 and 2009, respectively, and $2.0 and $1.2 ofwireless television services for the six months ended June 30, 2008 and2009, respectively.  This service was discontinued on May 31, 2009.

 
| ** **                      | ** ** | **Segment Assets**                   | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| **December 31, 2008** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets                |       | $                                         | 111,417    |   | $ | 58,782 |   | $ | 13,224 |   | $ | 9,820 |   | $ | 4,546 |   | $ | 441 |   | $ | 198,230 |   |
| Goodwill                        |       | —                                    |       | 32,148 |   | 618 |   | 7,471 |   | — |   | — |   | 40,237 |   |
| Total assets                    |       | 166,168                                   |       | 123,793 |   | 41,687 |   | 25,952 |   | 5,796 |   | 56,425 |   | 419,821 |   |
|                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                  | ** ** | **Segment Assets**                   | ** ** |
|-----------------------------|------------|-------------------------------------------|------------|
| **June 30, 2009** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets            |       | $                                         | 112,344    |   | $ | 62,919 |   | $ | 16,202 |   | $ | 9,151 |   | $ | 4,183 |   | $ | 301 |   | $ | 205,100 |   |
| Goodwill                    |       | —                                    |       | 32,148 |   | 722 |   | 7,491 |   | — |   | — |   | 40,361 |   |
| Total assets                |       | 153,252                                   |       | 136,106 |   | 41,847 |   | 25,517 |   | 5,288 |   | 63,027 |   | 425,037 |   |
|                             |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                           | ** ** | **Capital  Expenditures**                 | ** ** |
|--------------------------------------|------------|-------------------------------------------|------------|
| **Six  Months Ended  June 30,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| 2008                                 |       | $                                         | 5,905      |   | $ | 14,506 |   | $ | 22 |   | $ | 294 |   | $ | 171 |   | $ | 2 |   | $ | 20,900 |   |
| 2009                                 |       | 10,951                                    |       | 11,329 |   | 4,452 |   | 463 |   | 339 |   | 7 |   | 27,541 |   |
|                                      |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**12.  COMMITMENTS ANDCONTINGENCIES**

 

**Regulatoryand Litigation Matters**

 

The Company andits subsidiaries are subject to certain regulatory and legal proceedings andother claims arising in the ordinary course of business, some of which involveclaims for damages and taxes that are substantial in amount. The Companybelieves that, except for the items discussed below and in our 2008 Form 10-Kfor which the Company is currently unable to predict the final outcome, thedisposition of proceedings currently pending will not have a material adverseeffect on the Company’s financial position or results of operations.

 

As previouslydisclosed in our prior public reports, the Government of Guyana has stated itsintention to introduce additional competition into Guyana’s telecommunicationssector and held formal discussions with us in early 2008 regarding potentialmodifications of GT&T’s exclusivity rights.  In October 2008,GT&T was informally notified that the Government had retained the servicesof a U.S. based law firm and a consultant to develop the legislative andregulatory reforms necessary to introduce telecommunication competition inGuyana.  Based on informal discussions with these parties, we expect draftlegislation to be in the second half of 2009.  Our exclusive license has astated expiration in December 2010 and is, according to its terms,renewable for an additional 20-year term at our option.

 

At this time, ATNand GT&T do not know whether or how any draft legislation will addressGT&T’s exclusive license, and if so, whether it would be pursuant to anagreement between GT&T and the Government.  Other than entering intosuch an agreement on terms acceptable to us, we would seek to enforce GT&T’srights by law and contract to be the exclusive provider of international voiceand data services in Guyana.  Although we believe that we would beentitled to damages for any involuntary termination of that license, we cannotguarantee that we would prevail in any court or arbitration proceeding. See “Business—Regulation—Regulation of Our GT&T Subsidiary—RegulatoryDevelopments” and “Risk Factors—Our exclusive license to provide local exchangeand international voice and data services in Guyana is subject to significantpolitical and regulatory risk” in our 2008 Form 10-K.

 

On May 8,2009, Digicel filed a lawsuit in Guyana challenging the legality of GT&T’sexclusive license under Guyana’s constitution.  Digicel initially filedthis lawsuit against the Attorney General of Guyana in the High Court.  On May 13, 2009, GT&T petitioned tointervene in the suit in order to oppose Digicel’s claims and that petition wasgranted on May 18, 2009.  We believethat any legal challenge to GT&T’s exclusive license granted in 1990 iswithout merit and we will vigorously defend against such a legalchallenge.  GT&T filed its answer tothe charge on June 22, 2009.

 

GT&T’sexclusive license has previously been the subject of legal challenge onconstitutional grounds. In July 2002, an individual sued the AttorneyGeneral of Guyana in the High Court asking, among other things, for adeclaration that the section of our 1990 agreement with the Government ofGuyana granting to GT&T an exclusive right to provide domestic fixed andinternational voice and data services in Guyana violated Guyana law and wasnull and void. In September 2002, GT&T joined the suit to oppose theplaintiff’s claims. Although the suit remains pending, there have been nofurther developments since November 2002.  See “Legal Proceedings” inour 2008 Form 10-K.

 

In a letter dated September 8,2006, the National Frequency Management Unit (“NFMU”) indicated that spectrumfees in 2008 and onward may be increased beyond the amount agreed betweenGT&T and the Government in previous years. In a September 14, 2006letter to the Government, GT&T asserted that, by agreement with theGovernment, spectrum fees should be capped until the NFMU develops a feemethodology acceptable to all GSM spectrum licensees. In correspondence toGT&T in 

 

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June 2007, the NFMUstated that the cap on GSM spectrum fees would be removed in December 2007but did not indicate whether a fee methodology would be developed.  In its response to the NFMU, dated July 3,2007, GT&T objected to the NFMU’s proposed action and reiterated itsposition that an acceptable fee calculation methodology is necessary before theGovernment can assess spectrum fees.  Ina letter dated March 24, 2009, the NFMU requested information fromGT&T for use in calculating spectrum fees for 2009.  GT&T ispreparing a response to the NFMU’s request.

 

Except as setforth above, or described in Note 13, Subsequent Events, there have been nomaterial developments in regulatory or litigation matters in the period coveredby these interim Financial Statements. For further information concerningpending regulatory and litigation matters, see “Notes to Consolidated FinancialStatements, Note 13, Commitments and Contingencies — Regulatory and LitigationMatters” in the Company’s 2008 Annual Report on Form 10-K.

 

**Pending Acquisition**

 

On June 9, 2009, theCompany entered into a Purchase Agreement with Verizon to acquire wirelessassets in certain, primarily rural, markets in Georgia, North Carolina, SouthCarolina, Illinois, Ohio and Idaho. Pursuant to the terms of the PurchaseAgreement, and subject to certain regulatory consents,Verizon will causecertain licenses, network assets, tower and other leases and other assets andcertain related liabilities to be contributed to a newly formed, wholly-ownedsubsidiary limited liability company, whose membership interests will beacquired by the Company for a purchase price of approximately $200 million.Verizon is required to divest these assets under consent decrees it enteredinto with the Department of Justice related to its purchase of AlltelCorporation earlier this year. For more information, seeNote 4 to our Consolidated Financial Statements included in this Report.

 

**13.  SUBSEQUENT EVENTS**

 

Under the requirements ofSFAS 165, the Company has evaluated subsequent events from June 30, 2009to the filing date of this report on the Form 10-Q of August 10,2009. Other than the interconnection item noted below, there were no subsequentevents required to be recognized or disclosed in the financial statements.

 

By letter dated July 17,2009, Digicel notified GT&T that it is terminating the interconnectionagreement between Digicel and GT&T effective in 180 days.  That agreement, which the companies signed onApril 4, 2003, identifies the terms and conditions by which Digicel andGT&T networks are connected for the exchange of telecommunications trafficin Guyana.  Without an interconnectionagreement in place, there is no clear framework for calls originating on onenetwork to be terminated on the other network. Digicel has expressed its desire to renegotiate all interconnectionterms and asserts that it is terminating the existing interconnection agreementto compel GT&T to negotiate new terms and conditions immediately.  GT&T has frequently expressed to Digicelits willingness to negotiate a new interconnection agreement once there is moreclarity from the Government of Guyana regarding the timing and scope of its proposedtelecommunications legislation, which is likely to affect any interconnectiondiscussion.  In a letter dated July 27,2009, GT&T reiterated its willingness to negotiate and expressed confidencethat there will be ample time to do so once the Government’s liberalizationprogram is prepared and publicized.  Itis GT&T’s belief that proceeding to renegotiate the terms and conditions ofthe interconnection agreement at this time would be premature. We do notbelieve the termination of the interconnection agreement between Digicel andGT&T would have a material adverse affect on our financial statements.

 

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

This discussionshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations included in our 2008 Form 10-K.Some of the statements in the discussion are forward-looking statements, whichare subject to risks, uncertainties and other factors that could cause actualresults to differ materially from future results expressed or implied by suchforward-looking statements. These risk factors include those discussed underItem 1A, “Risk Factors” in our 2008 Form 10-K and those set forth in thisReport under “Cautionary Statement Regarding Forward-Looking Statements.”

 

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**OVERVIEW**

 

We providewireless and wireline telecommunications services in the Caribbean and Northand South America through the following principal operating subsidiaries:

 

·  CommnetWireless, LLC (“Commnet”), an owner and operator of wholesale wirelessnetworks in rural areas of the United States. Commnet provides wireless voiceand data communications roaming services principally to national, regional andlocal wireless carriers. Commnet generated approximately 33% and 43% of theCompany’s consolidated revenues for the three months ended June 30, 2008and 2009, respectively. ATN acquired Commnet in 2005 and currently owns 100% ofCommnet’s equity.

 

·  Guyana Telephone & Telegraph Company, Ltd. (“GT&T”),the national and international telephone company in the Republic of Guyana andthe largest wireless service provider in that country. The Company has owned80% of the stock of GT&T since January 1991. GT&T generatedapproximately 49% and 38% of the Company’s consolidated revenues for the threemonths ended June 30, 2008 and 2009, respectively. The reduction in thesepercentages is principally due to the Company’s acquisitions in recent yearsand the growth in those acquired operations.

 

·  Bermuda Digital Communications, Ltd. (“BDC”), a leadingwireless voice and data communications service provider in Bermuda, doingbusiness under the name “Cellular One”. The Company acquired an equity interestin, and signed a management contract with, BDC in 1998. On May 15, 2008,BDC completed a share repurchase of its common stock. ATN did not tender anyshares for repurchase, and, as a result of the transaction, increased itsholdings from approximately 43% to approximately 58% of BDC’s outstandingcommon stock. Prior to this increase in holdings, the Company accounted for itsinvestment in BDC under the equity method and earnings from BDC did not appearin its income from operations, but were instead reflected in equity in earningsof unconsolidated affiliates. Effective with the completion of that sharerepurchase, the Company began consolidating BDC’s balance sheet and results ofoperations. In September 2008, BDC began providing wireless services inTurks and Caicos through Islandcom Telecommunications, Ltd.

 

·  Sovernet, Inc. (“Sovernet”), a facilities-basedintegrated voice, broadband data communications and dial-up service provider inNew England and New York State. Sovernet’s retail telecommunications service isdelivered to business and residential customers in Vermont and New Hampshire.Through an acquisition made in 2008, Sovernet also delivers wholesale transportservices in New York State through its subsidiary, ION. The Company has owned96% of Sovernet since its acquisition in February 2006.

 

·  Choice Communications, LLC (“Choice”), a leadingprovider of fixed wireless broadband data and dial-up internet services toretail and business customers in the U.S. Virgin Islands. Choice is a whollyowned subsidiary of the Company.  Choice discontinued its wirelesstelevision service on May 31, 2009 to focus mainly on providing wirelessbroadband data services. ATN acquired Choice in 1999 and owns 100% of Choice’sequity.

 

As a holdingcompany, we provide management, technical, financial, regulatory, and marketingservices to, and typically receive a management fee equal to approximately 3%to 6% of revenues from, each operating subsidiary. Management fees fromconsolidated subsidiaries are eliminated in consolidation. Management fees fromunconsolidated affiliates in 2008 are included in “Other Income” in theaccompanying statements of operations.

 

The followingchart summarizes the operating activities of our principal subsidiaries and themarkets they serve as of June 30, 2009:

 
| **Services**                       | ** ** | **Segment**                               | ** ** | **Operating  Subsidiary**    | ** ** | **Markets**                    |
|------------------------------------|------------|-------------------------------------------|------------|------------------------------|------------|--------------------------------|
| **Wireless**                       |       | Rural  Wireless                           |       | Commnet                      |       | United  States (rural markets) |
|                               |       |                                      |       |                         |       |                           |
|                               |       | Integrated  Telephony—               |       | GT&T                     |       | Guyana                         |
|                               |       | International                             |       |                         |       |                           |
|                               |       |                                      |       |                         |       |                           |
|                               |       | Island  Wireless                          |       | BDC,  Islandcom              |       | Bermuda,  Turks and Caicos     |
|                               |       |                                      |       |                         |       |                           |
| **Local Telephone and Data**       |       | Integrated  Telephony— International |       | GT&T                     |       | Guyana                         |
|                               |       |                                      |       |                         |       |                           |
|                               |       | Integrated  Telephony—               |       | Sovernet,  ION               |       | United  States (New England    |
|                               |       | Domestic                                  |       |                         |       | and  New York State)           |
|                               |       |                                      |       |                         |       |                           |
|                               |       | Wireless  Data                            |       | Choice  (internet access)    |       | U.S.  Virgin Islands           |
|                               |       |                                      |       |                         |       |                           |
| **International Long****Distance** |       | Integrated  Telephony—International  |       | GT&T                     |       | Guyana                         |
|                               |       |                                      |       |                         |       |                           |
| **Other (1)**                      |       | Wireless  Data                            |       | Choice  (digital television) |       | U.S.  Virgin Islands           |

 

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(1) As describedabove, effective May 31, 2009, the Company terminated its wirelesstelevisions services, and therefore has changed the name of its segment from “WirelessTelevision and Data” to “Wireless Data”.

 

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For informationabout our business segments and geographical information about our operatingrevenues and long-lived assets, see Note 11 to the Consolidated FinancialStatements in this Report.

 

Overthe last several years, we have significantly diversified our business andreduced our historical dependence on GT&T’s operations for our financialresults. This reduction of GT&T’s contribution is due mainly to theacquisition and growth of Commnet as well as the expansion of our Sovernetbusiness and the recent increase in our ownership interest in BDC and relatedacquisitions, as described under the captions “Business—Local Telephone andData Services—U.S. Operations” and “—Wireless Services—Island Operations” inour 2008 Form 10-K. We expect to continue this trend of diversificationand are actively evaluating additional investment and acquisition opportunitiesthat meet our return-on-investment and other acquisition criteria. The pendingacquisition of Alltel wireless assets, if completed, will further substantiallyreduce GT&T’s portion of our consolidated revenue. For informationregarding the pending Alltel acquisition see “Recent Developments-U.S.”.

 

We aredependent on GT&T and Commnet for a majority of our revenues and profits.For the three months ended June 30, 2009, approximately 80% of ourconsolidated revenue and substantially all of our consolidated operating incomewere generated by these two operating subsidiaries.

 

Commnet’srevenues and profits are primarily driven by the number of sites and basestations we operate, the amount of voice and data traffic that each of thesesites generates, and the rate we get paid from our carrier customers on thattraffic. During the second quarter of 2009, Commnet’s contribution to ourconsolidated revenues and operating income was approximately 43% and 74%,respectively, as compared to 33% and 47% for the second quarter of 2008.Commnet competes with wireless service providers that operate networks in itsmarkets and offer wholesale roaming services as well. In addition, Commnet’scarrier customers may also elect to build or acquire their own infrastructure(including networks that Commnet built out pursuant to its roaming agreements)in a market in which they operate, reducing or eliminating their need forCommnet’s services in that market.  For more information regarding segmentreporting on Commnet, see “Rural Wireless” in Note 11 to our ConsolidatedFinancial Statements included in this Report.

 

Thelargest single component of GT&T’s revenues and profits has been from itsinternational long distance business, which accounted for approximately 16% ofour consolidated revenue during the three months ended June 30, 2009.While the majority of this international long distance revenue is generated bycalls originated by, or terminating with, wireline and wireless customers, weare currently the exclusive provider of international voice and data andtherefore generate revenue and profit from calls and data originating on ourcompetitor’s wireless network. For information about our competitor’stermination of its interconnection agreement with us, see Note 13 to theConsolidated Financial Statements in this Report.

 

Theprimary drivers of the long distance business are the population of Guyaneseliving abroad who initiate calls to Guyana and the rate foreign carriers payGT&T for handling the incoming international calls. However, in recentyears, we believe various methods of illegal bypass and alternative and cheapermedia for communication, such as e-mail and text messaging, may have had anegative impact on both voice traffic and international long distance revenues.Beginning in 2008, we believe there was a substantial increase in illegalbypass activities. We have taken a number of measures to counter illegalbypass, including taking action against unlicensed operators in Guyana,introducing special outbound call center rates and we are examining automatedtechnical solutions as well. More recently, we also believe the currenteconomic recession also has reduced the volume of calls into and out of Guyanaand negatively impacted our revenues.

 

Inaddition to our 2009 planned capital expenditures to improve our GT&Tnetwork, we will be investing over the next 12 -18 months a total of$15 million to $20 million in a new submarine fiber optic cable inGuyana. The construction of this new international cable connecting Guyana toTrinidad will provide for continued growth in the provision of high speed dataand internet services into Guyana, and give us a cost-effective method ofincreased redundancy. We believe this is particularly important in the currentoperating environment of a worldwide shift from voice-driven applications todata-driven applications and the growth in broadband demand. We expect thiscable to be operational as early as the second quarter of 2010.

 

Aspreviously disclosed in our prior public reports, the Government of Guyana hasrepeatedly stated its intention to introduce additional competition into Guyana’stelecommunications sector and held formal discussions with us in early 2008regarding potential modifications of GT&T’s exclusivity rights. In October 2008,GT&T was informally notified that the Government had retained the servicesof a U.S. based law firm and a consultant to develop the legislative andregulatory reforms necessary to introduce telecommunication competition inGuyana. Based on informal discussions with these parties, we expect draftlegislation to be 

 

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available in the secondhalf of 2009. Our exclusive license has a stated initial term that ends in December 2010and is, according to its terms, renewable for an additional 20-year term at ouroption.

 

Atthis time, ATN and GT&T do not know whether or how any draft legislationwill address GT&T’s exclusive license, and if so, whether it would bepursuant to an agreement between GT&T and the Government. Other thanentering into such an agreement on terms acceptable to us, we would seek toenforce GT&T’s rights by law and contract to be the exclusive provider ofinternational voice and data services in Guyana. Although we believe that wewould be entitled to damages for any involuntary termination of that license,we cannot guarantee that we would prevail in any court or arbitrationproceeding. See “Business—Regulation—Regulation of Our GT&TSubsidiary—Regulatory Developments” and “Risk Factors—Our exclusive license toprovide local exchange and international voice and data services in Guyana issubject to significant political and regulatory risk” in our 2008 Form 10-K.

 

**RecentDevelopments- U.S.**

 

***PendingAcquisition- Alltel Assets***

 

On June 9,2009, the Company entered into a Purchase Agreement (the “Purchase Agreement”)with Cellco Partnership d/b/a Verizon Wireless (“Verizon”) to acquire wirelessassets previously acquired by Verizon in its acquisition of Alltel Corporation(“Alltel”) in certain, primarily rural, markets in Georgia, North Carolina,South Carolina, Illinois, Ohio and Idaho. Pursuant to the terms of the PurchaseAgreement, Verizon will cause certain licenses, network assets, tower and otherleases and other assets and certain related liabilities to be contributed to anewly formed, wholly-owned subsidiary limited liability company, whosemembership interests will be acquired by the Company for a purchase price ofapproximately $200 million (the “Alltel Acquisition”).

 

The parties have agreedto a variety of customary covenants and agreements, including with respect toconfidentiality, cooperation (including with respect to regulatory matters),the conduct of the business to be acquired in the ordinary course consistentwith past practice and other restrictions on the operation of such businessprior to the consummation of the Alltel Acquisition, public announcements andsimilar matters. Consummation of the Alltel Acquisition is subject to thesatisfaction of certain conditions, including, among others, (i) thereceipt of the United States Department of Justice’s approval of the AlltelAcquisition, (ii) the receipt of all required consents of the FederalCommunications Commission to the transfer, assignment or change in control ofcertain licenses pursuant to the Alltel Acquisition, (iii) the receipt ofrequired consents from state public utility commissions, if any, and (iv) theabsence of any injunction or final judgment prohibiting the consummation of theAlltel Acquisition. Consummation of the Alltel Acquisition is not subject toany financing condition.  In conjunctionwith the acquisition, the Company expects to amend and expand its existingcredit facility to fund a majority of the acquisition’s purchase price.   We expect the Alltel Acquisition to close bythe end of 2009.

 

Verizon isrequired to divest these and other assets under consent decrees it entered intowith the Department of Justice related to its purchase of Alltel in January ofthis year.  On May 8, 2009, AT&Tannounced it has entered into a definitive agreement with Verizon to acquirethe majority of the wireless assets required to be divested (the “AT&TAcquisition”).  ATN has contracted toacquire from Verizon the remainder of the assets required to be divested.

 

**RecentDevelopments- Guyana**

 

On May 7,2009, at the Annual General Meeting of GT&T, the representative of theGovernment of Guyana on the Board of Directors of GT&T indicated torepresentatives of ATN in attendance at the meeting that the Government ofGuyana is interested in selling its 20% interest in GT&T. In a letterdated June 22, 2009, the Government of Guyana formally offered to sell its20% interest in GT&T to ATN, which currently owns 80% of GT&T, andreserved the right to offer to sell such interest to other potential purchasersif ATN decides not to purchase the Government’s stake.  The Board ofDirectors of ATN considered the Government’s offer and, in a letter dated June 22,2009 indicated that it was not prepared to make a definitive offer for thatinterest at this time.

 

Theprincipal terms of our investment in GT&T are set forth in the Agreementbetween The Government of The Co-Operative Republic of Guyana and ATN, dated June 18,1990 (the “Guyana Agreement”), which is included as Exhibit 10 to ourQuarterly Report on Form 10-Q for the fiscal quarter ended March 31,2006, as filed with the SEC on May 15, 2006.  The Guyana Agreementdoes not provide for any specific procedures in connection with the potentialsale by the Government of Guyana of its 20% interest in GT&T and theGovernment has not indicated a timeframe in which it would seek to complete anyproposed sale.

 

On May 8,2009, Digicel filed a lawsuit in Guyana challenging the legality of GT&T’sexclusive license under Guyana’s constitution.  Digicel initially filedthis lawsuit against the Attorney General of Guyana in the High Court.  On May 13, 2009, GT&T petitioned tointervene in the suit in order to oppose Digicel’s claims and that petition wasgranted on May 18, 2009.  We believethat any legal challenge to GT&T’s exclusive license granted in 1990 iswithout merit and we will vigorously defend against such a legalchallenge.  GT&T filed its answer tothe charge on June 22, 2009.

 

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**Resultsof Operations**

 

***Three Months Ended June 30, 2008 and 2009***

*** ***
| ** **                                                               | ** ** | **Three Months Ended  June 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **2008**                                        | ** ** | **2009**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                               | ** ** | **(In thousands)**                         | ** ** |
| **REVENUE:**                                                             |       |                                            |       |                         |       |                  |       |   |   |
| Wireless                                                                 |       | $                                               | 24,786     |                         | $          | 36,515                |       | $ | 11,726 |   | 47.3 | % |
| Local telephone and data                                                 |       | 12,267                                          |       | 13,500                       |       | 1,233                 |       | 10.1 |   |
| International long distance                                              |       | 12,387                                          |       | 9,878                        |       | (2,509                | )          | (20.2 | ) |
| Other                                                                    |       | 974                                             |       | 402                          |       | (572                  | )          | 58.7 |   |
| Total revenue                                                            |       | 50,414                                          |       | 60,295                       |       | 9,881                 |       | 19.6 |   |
| **OPERATING EXPENSES:**                                                  |       |                                            |       |                         |       |                  |       |   |   |
| Termination and access fees                                              |       | 8,376                                           |       | 10,887                       |       | 2,511                 |       | 30.0 |   |
| Internet and programming                                                 |       | 863                                             |       | 397                          |       | (466                  | )          | (54.0 | ) |
| Engineering and operations                                               |       | 5,930                                           |       | 7,511                        |       | 1,581                 |       | 26.7 |   |
| Sales and marketing                                                      |       | 2,944                                           |       | 3,807                        |       | 863                   |       | 29.3 |   |
| General and administrative                                               |       | 6,819                                           |       | 9,787                        |       | 2,968                 |       | 43.5 |   |
| Depreciation and amortization                                            |       | 7,424                                           |       | 9,794                        |       | 2,370                 |       | 31.9 |   |
| Total operating expenses                                                 |       | 32,356                                          |       | 42,183                       |       | 9,827                 |       | 30.4 |   |
| Income from operations                                                   |       | 18,058                                          |       | 18,112                       |       | 54                    |       | 0.3 |   |
| **OTHER INCOME (EXPENSE):**                                              |       |                                            |       |                         |       |                  |       |   |   |
| Interest expense                                                         |       | (664                                            | )          | (1,197                       | )          | (533                  | )          | 80.3 |   |
| Interest income                                                          |       | 410                                             |       | 369                          |       | (41                   | )          | (10.0 | ) |
| Other income (expense), net                                              |       | 143                                             |       | 10                           |       | (133                  | )          | (93.0 | ) |
| Other income (expense), net                                              |       | (111                                            | )          | (818                         | )          | (707                  | )          | (636.9 | ) |
| **INCOME BEFORE INCOME TAXES**                                           |       | 17,947                                          |       | 17,294                       |       | (653                  | )          | (3.6 | ) |
| Income taxes                                                             |       | 6,642                                           |       | 7,342                        |       | 700                   |       | 10.5 |   |
| **INCOME BEFORE EQUITY IN EARNINGS  OF UNCONSOLIDATED AFFILIATES**       |       | 11,305                                          |       | 9,952                        |       | (1,353                | )          | (12.0 | ) |
| Equity in earnings of unconsolidated affiliates                          |       | 272                                             |       | —                       |       | (272                  | )          | (100.0 | ) |
|                                                                     |       |                                            |       |                         |       |                  |       |   |   |
| **NET INCOME**                                                           |       | 11,577                                          |       | 9,952                        |       | (1,625                | )          | (14.0 | ) |
| Net income attributable to non-controlling  interests                    |       | (1,373                                          | )          | (315                         | )          | 1,058                 |       | 77.1 |   |
|                                                                     |       |                                            |       |                         |       |                  |       |   |   |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS** |       | $                                               | 10,204     |                         | $          | 9,637                 |       | (567 | ) | (5.6 | )% |
|                                                                          |            |                                                 |            |                              |            |                       |            |  |  |  |  |  |

 

*Wirelessrevenue.* Wireless revenue includes wholesale voice and dataroaming revenue from our rural U.S. operations, retail wireless revenuesgenerated in Guyana, and, since May 15, 2008, our retail wireless revenuesgenerated by our Island Wireless segment.

 

Wireless revenueincreased to $36.5 million for the three months ended June 30, 2009 from$24.8 million for the three months ended June 30, 2008, an increase of$11.7 million, or 47%. Our rural U.S. business increased its revenues by $8.9million, or 53%, to $25.8 million from $16.9 million. The increase in our equityposition in, and consolidation of BDC, which occurred as of May 15, 2008,contributed $2.6 million of the increase.

 

The increase inwireless revenue from our U.S. wireless business was due primarily to continueddeployment of additional GSM and CDMA wireless base stations, which generatedgrowth in minutes of use and increased data and international roaming revenue,as well as the December 2008 acquisition of the wireless network assets ofCC Communications, a telecommunications company based in Fallon, Nevada. As of June 30, 2009, a total of 537 base stations were deployed ascompared to 367 base stations as of June 30, 2008.  Our rural wireless revenue also increased asa result of growth in voice and data traffic (measured in minutes andmegabytes) at existing sites and growth in data roaming revenue andinternational roaming revenue.

 

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Verizon’sacquisition of Alltel and, if approved by federal and regulatory authorities,the AT&T Acquisition, will cause some loss of wireless revenue for usbecause the network assets acquired by each of Verizon and AT&T overlapgeographically with our network in a substantial number of areas.  In addition, the AT&T Acquisition, ifapproved, could result in an additional loss in revenue if AT&T completesits previously announced GSM network build in those areas.  AT&T haspublicly stated its expectation that it will complete such an overlay within ayear from closing the purchase, or before the end of 2010.  This loss inrevenue could have a significantly negative impact on our revenues andoperating income if it is not offset or replaced by increased revenue in otherareas of our U.S. rural wireless business or from other sources, includingincreased revenue in connection with the pending Alltel Acquisition, ifcompleted.

 

While we expect tosee a continued increase in wireless revenues from our rural U.S. wirelessbusiness in geographical areas not impacted by Verizon’s acquisition of Alltel,the pace of that increase may be slowed as compared to the growth in previousperiods due to scheduled reductions in revenue rates.

 

Althoughadditional competition in Guyana caused our wireless subscribers to decrease by4%, to 266,000 subscribers from 277,000 subscribers as of June 30, 2009and 2008, respectively, GT&T’s wireless revenue increased by $0.2 million,or 4%, to $5.2 million from $5.0 million for the quarters ended June 30,2009 and 2008, respectively.   Suchincrease was the result of an increase in short messaging service (SMS)traffic.

 

While we do notexpect wireless subscribers or revenue in Guyana to continue to decline at thisrate, as we saw a small increase in subscribers from December 31, 2008,our competitor could continue to take market share with aggressive spending.Additionally, an overall decline in the Guyana market for wireless subscriberscould result from reduced consumer spending due to worsening economic conditionsor other factors.

 

*Localtelephone and data revenue.*Local telephone and data revenueis generated by our wireline operations in Guyana, our integrated voice anddata operations in New England and New York State, and our data services in theU.S. Virgin Islands. This revenue includes basic service fees, measured servicerevenue, and internet access fees, as well as installation charges for newlines, monthly line rental charges, long distance or toll charges (excludinginternational long distance charges in Guyana), maintenance and equipmentsales.

 

Local telephoneand data revenue increased by $1.3 million, or 11%, to $13.5 million for thesecond quarter of 2009 from $12.2 million for the second quarter of 2008. Theincrease is attributable to Sovernet, which increased revenues by$1.0 million as a result of the addition of ION, which Sovernet acquiredon August 15, 2008. Sovernet continues to add business customers for itsvoice and data services at a strong rate and improve profitability; however, itsoverall revenue increase is partially offset by the decline in its residentialdata business, particularly its dial-up internet services. Local telephone anddata revenue in Guyana increased $0.3 million, or 4%, from $7.3 million for thequarter ended June 30, 2008 to $7.6 million for the quarter ended June 30,2009. GT&T’s access lines in Guyana grew from approximately 135,000 linesas of June 30, 2008 to approximately 142,000 lines as of June 30,2009 (an increase of 5%). Revenue from the growth in access lines has beenoffset by a decrease in usage due to wireless service alternatives.  Datarevenue at our U.S. Virgin Islands subsidiary remained consistent.  Infuture periods, we anticipate that local telephone and data revenue will increasemodestly as a result of network expansion and subscriber and access line growthin New York, New England and Guyana.

 

*Internationallong distance revenue.* International long distance revenue isgenerated by international telephone calls into and out of Guyana and does notinclude international long distance revenue generated by our other operations.Inbound traffic, which made up 85% of all international long distance trafficand 70% of international long distance revenue for the three months ended June 30,2009, is settled in U.S. dollars.

 

International longdistance revenue was $9.9 million during the second quarter of 2009, a decreaseof $2.5 million, or 20%, from $12.4 million in the second quarter of 2008. Ourinternational traffic is vulnerable to illegal bypass via internet calling andother methods such as direct satellite bypass, which we believe has increasedconsiderably since mid-2008. We also believe we experienced a reduction in thecall volume into Guyana due to the current worldwide economic slowdown. In thefuture, international voice traffic may also decline as a result of the growthof alternative and cheaper media for communications, such as e-mail and textmessaging. Although the other modes of communication may cause a decline inboth voice traffic and in international long distance revenues in futureperiods, we may see a slight increase in traffic and revenues if we areeffective in combating illegal bypass. The outcome of negotiations with theGovernment of Guyana regarding the exclusivity terms of GT&T’s license isalso likely to negatively impact this revenue in the future.

 

*Otherrevenue*. Other revenue represents revenue from wirelessdigital television services in the U.S. Virgin Islands, which decreased 60% to$0.4 million for the second quarter of 2009 from $1.0 million for thesecond quarter of 2008.   On May 31,2009, the 

 

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Company terminated itswireless television services in order to focus solely on providing wirelessbroadband data and dialup internet services. Due to the termination of these services, we will no longer recognizeother revenue relating to digital television services.

 

*Terminationand access fee expenses.*Termination and access fee expensesare charges that we pay for voice and data transport circuits (in particular,the circuits between our rural wireless sites and our switches), internetcapacity and other access fees we pay to terminate our calls.

 

Termination andaccess fees increased by $2.5 million, or 30%, from $8.4 million to $10.9million from the second quarter of 2008 to the second quarter of 2009,respectively, as a result of increased traffic at Commnet, the consolidation ofBDC’s results for a full quarter in 2009 and an increase in expenses atSovernet as a result of their August 2008 acquisition of ION. Theseexpenses are expected to increase in future periods, but remain fairlyconsistent as compared to their related revenues, as our rural wireless andCLEC operations in Vermont expand.

 

*Internetand programming expenses.*Internet and programming expensesinclude internet connectivity charges and digital television programming.

 

Internet andprogramming expenses decreased from $0.9 million in the second quarter of**2008 to $0.4 million in the secondquarter of**2009. This decreasewas primarily related to our U.S. Virgin Islands operations as we terminatedour digital television services on May 31, 2009.

 

*Engineeringand operations expenses.*Engineering and operations expensesinclude the expenses associated with developing, operating, supporting andexpanding our networks, including the salaries and benefits paid for employeesdirectly involved in the development and operation of our networks.

 

Engineering andoperations expenses increased by $1.6 million, or 27%, from $5.9 million to$7.5 million from the second quarter of 2008 to the second quarter of 2009,respectively. This increase is primarily the result of the expansion of ourwireless networks in the United States as well as the consolidation of BDC’sresults for 2009. We expect that engineering and operations will continue toincrease to further support those networks.

 

*Salesand marketing expenses.*Sales, marketing and customer serviceexpenses include salaries and benefits we pay for sales personnel, customerservice expenses, sales commissions and the costs associated with thedevelopment and implementation of our promotion and marketing campaigns.

 

Sales andmarketing expenses increased by $0.9 million, or 31%, from $2.9 million to $3.8million from the second quarter of 2008 to the second quarter of 2009,respectively. This increase is mainly the result of the consolidation of BDC’sresults for 2009.* *We expectthat sales and marketing expenses will remain consistent as a percentage ofrelated revenues in the near future.

 

*Generaland administrative expenses.*General and administrativeexpenses include salaries, benefits and related costs for general corporatefunctions, including executive management, finance and administration, legaland regulatory, facilities, information technology and human resources.

 

General andadministrative expenses increased by $3.0 million, or**44%*,* from$6.8 million for the second quarter of 2008 to $9.8 million for the secondquarter of 2009.  Of this increase, $1.5**million is the result of our consolidation of BDC in 2009.* *For the remainder of 2009, we expect general and administrativeexpenses to increase substantially as a result of increased transaction costsassociated with the Alltel Acquisition. Subsequent to the close of that acquisition, we expect generaland administrative expenses to increase in order to support our growth butremain consistent as compared to our consolidated revenues.

 

*Depreciationand amortization expenses.* Depreciation and amortizationexpenses represent the depreciation and amortization charges we record on ourproperty and equipment and on our intangible assets.

 

Depreciation andamortization expenses increased by $2.4 million, or 32%, from $7.4 millionto $9.8 million for the second quarter of 2008 and the second quarter of**2009, respectively. The increase isprimarily due to the addition of fixed assets from our network expansion in ourrural U.S. wireless business, the consolidation of BDC’s results for 2009, andthe acquisitions of ION and Islandcom, which occurred in the third quarter of2008.

 

*Interestexpense.* Interest expense represents interest incurred on ouroutstanding credit facilities. On September 10, 2008, the Company repaidthe then outstanding $50.0 million term loan with the proceeds from a new$75.0 million term loan. At the same time, the Company’s revolving line ofcredit facility expanded from $20.0 million to $75.0 million. Also during September 2008,the 

 

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Company entered into aninterest rate swap agreement which is further detailed in Note 7 to theConsolidated Financial Statements included in this Report.

 

Interest expenseincreased from $0.7 million for the second quarter of**2008 to $1.2 million for the second quarter of**2009. The increase in interest expensewas due to the increase in our term loan borrowings. We had no outstandingborrowings under our revolving line of credit during the second quarters of2008 or 2009.

 

*Interestincome*. Interest income represents interest earned on ourcash, cash equivalent and short term investments.

 

Interest incomewas $0.4 million for the second quarters of 2008 and 2009, respectively.

 

*Incometaxes. *The effective tax rate was 37% for the secondquarter of 2008 and 42% for the second quarter of 2009.  Income taxexpense includes tax at the statutory U.S. federal and state income tax ratesas well as the Guyanese income taxes in excess of the statutory U.S. income taxrates. The effective tax rate is impacted by the receipt of foreign dividendsand, beginning in May 2008, the consolidation of BDC and its subsidiary,which operate in tax free jurisdictions.

 

*NetIncome Attributable to Non-Controlling Interests.*For 2008,**net income attributable tonon-controlling interests consists of the Guyana government’s 20% interest inGT&T, a non-controlling shareholder’s 4% interest in Sovernet, and othernon-controlling shareholders’ interests in certain consolidated subsidiaries ofCommnet.  For 2009, net income attributable to non-controlling interestsalso consists of non-controlling shareholders’ 42% equity interest in BDC aswell as consolidated subsidiaries of Sovernet and BDC.

 

Net incomeattributable to non-controlling interests decreased from $1.4 million to $0.3million for the second quarter of**2008and the second quarter of**2009,respectively. This decrease is a result of the allocation of non-controllingshareholders’ share of losses in our two early stage businesses (ION andIslandcom) following the adoption of FAS 160 in 2009. We expect net incomeattributable to non-controlling interests to increase in the future as ourearly stage businesses mature.

 

*Netincome attributable to Atlantic Tele-Network, Inc. Stockholders.*Asa result of the above factors, net income decreased by $0.6 million, or 6%,from $10.2 million for the second quarter of**2008 to $9.6 million for the second quarter of**2009. On a per share basis, net incomedecreased from $0.67 per basic and diluted share to $0.63 per basic and dilutedshare from 2008 to 2009, respectively.  We expect the discontinuation ofwireless television services to have an insignificant impact on future netincome attributable to Atlantic Tele-Network, Inc. Stockholders.

 

*Segment results.*    Wehave five material operating segments, which we manage and evaluate separately:(1) Integrated Telephony—International; (2) Rural Wireless; (3) IslandWireless; (4) Integrated Telephony—Domestic; and (5) Wireless Data.Island Wireless became an operating segment upon completion of BDC’s sharerepurchase and the resulting increase in our equity interest in BDC, effective May 15,2008. Segment results are set forth in Note 11 to the ConsolidatedFinancial Statements included in this Report.

 

***Six Months Ended June 30, 2008 and 2009***

 
| ** **                                                               | ** ** | **Six Months Ended  June 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **2008**                                      | ** ** | **2009**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                               | ** ** | **(In thousands)**                       | ** ** |
| **REVENUE:**                                                             |       |                                          |       |                         |       |                  |       |   |   |
| Wireless                                                                 |       | $                                             | 44,539     |                         | $          | 68,240                |       | $ | 23,701 |   | 53.2 | % |
| Local telephone and data                                                 |       | 24,514                                        |       | 26,553                       |       | 2,039                 |       | 8.3 |   |
| International long distance                                              |       | 24,942                                        |       | 20,279                       |       | (4,663                | )          | 18.7 |   |
| Other                                                                    |       | 2,049                                         |       | 1,189                        |       | (860                  | )          | (42.0 | ) |
| Total revenue                                                            |       | 96,044                                        |       | 116,261                      |       | 20,217                |       | 21.0 |   |
| **OPERATING EXPENSES:**                                                  |       |                                          |       |                         |       |                  |       |   |   |
| Termination and access fees                                              |       | 15,964                                        |       | 21,333                       |       | 5,369                 |       | 33.6 |   |
| Internet and programming                                                 |       | 1,762                                         |       | 1,186                        |       | (576                  | )          | (32.7 | ) |
| Engineering and operations                                               |       | 11,785                                        |       | 14,457                       |       | 2,672                 |       | 22.7 |   |
| Sales and marketing                                                      |       | 5,618                                         |       | 7,399                        |       | 1,781                 |       | 31.7 |   |
| General and administrative                                               |       | 12,702                                        |       | 18,003                       |       | 5,301                 |       | 41.7 |   |
| Depreciation and amortization                                            |       | 14,501                                        |       | 18,994                       |       | 4,493                 |       | 31.0 |   |
| Total operating expenses                                                 |       | 62,332                                        |       | 81,372                       |       | 19,040                |       | 30.5 |   |
| Income from operations                                                   |       | 33,712                                        |       | 34,889                       |       | 1,168                 |       | 3.5 |   |
| **OTHER INCOME (EXPENSE):**                                              |       |                                          |       |                         |       |                  |       |   |   |
| Interest expense                                                         |       | (1,316                                        | )          | (2,355                       | )          | (1,039                | )          | (79.0 | ) |
| Interest income                                                          |       | 978                                           |       | 709                          |       | (269                  | )          | (27.5 | ) |
| Other income (expense), net                                              |       | 368                                           |       | 36                           |       | (332                  | )          | (90.2 | ) |
| Other income (expense), net                                              |       | 30                                            |       | (1,610                       | )          | (1,640                | )          | (5,466.7 | ) |
| **INCOME BEFORE INCOME TAXES**                                           |       | 33,742                                        |       | 33,279                       |       | (463                  | )          | (1.4 | ) |
| Income taxes                                                             |       | 14,032                                        |       | 14,298                       |       | 266                   |       | 1.9 |   |
| **INCOME BEFORE EQUITY IN EARNINGS  OF UNCONSOLIDATED AFFILIATES**       |       | 19,710                                        |       | 18,981                       |       | (729                  | )          | (3.7 | ) |
| Equity in earnings of unconsolidated affiliates                          |       | 735                                           |       | —                       |       | (735                  | )          | (100.0 | ) |
|                                                                     |       |                                          |       |                         |       |                  |       |   |   |
| **NET INCOME**                                                           |       | 20,445                                        |       | 18,981                       |       | (1,464                | )          | (7.2 | ) |
| Net income attributable to non-controlling  interests                    |       | (2,374                                        | )          | (543                         | )          | 1,831                 |       | 77.1 |   |
|                                                                     |       |                                          |       |                         |       |                  |       |   |   |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS** |       | $                                             | 18,071     |                         | $          | 18,438                |       | 367 |   | 2.0 |   |
|                                                                          |            |                                               |            |                              |            |                       |            |  |  |  |  |  |

 

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*Wirelessrevenue.* Wireless revenue increased to $68.2 million for thesix months ended June 30, 2009 from $44.5 million for the six months endedJune 30, 2008, an increase of $23.7 million, or 53%. Our rural U.S.business increased its revenues by $16.0 million, or 51%, to $47.4 million from$31.4 million. The increase in our equity position in, and consolidation ofBDC, which occurred as of May 15, 2008, contributed $7.7 million of theincrease.

 

The increase inwireless revenue from our U.S. wireless business was due primarily to continueddeployment of additional GSM and CDMA wireless base stations, which generatedgrowth in minutes of use and increased data and international roaming revenue,as well as the December 2008 acquisition of the wireless network assets ofCC Communications, a telecommunications company based in Fallon, Nevada. As of June 30, 2009 a total of 537 base stations were deployed as comparedto 367 base stations as of June 30, 2008. Our rural wireless revenue also increased as a result of growth in voiceand data traffic (measured in minutes and megabytes) at existing sites andgrowth in data roaming revenue and international roaming revenue.

 

The increase inwireless revenue from our rural U.S. operations was partially offset by adecline in wireless revenue in Guyana. As discussed previously, a largeregional wireless competitor is operating its wireless service with aggressivemarketing campaigns and significant handset subsidies in Guyana.  Thedecline in revenue in the six months ended June 30, 2009 primarilyreflects the continued impact of that competition and a decrease in rates. Thisadditional competition in Guyana caused our wireless subscribers to decrease by4%, from about 277,000 subscribers as of June 30, 2008 to about 266,000subscribers as of June 30, 2009. These factors resulted in a $0.1 milliondecrease in GT&T’s wireless revenue from $10.2 million during the sixmonths ended June 30, 2008 to $10.1 million during the same period of2009.

 

*Localtelephone and data revenue.*Local telephone and data revenueincreased by $2.1 million, or 9%, to $26.6 million for the six months ended June 30,2009 from $24.5 million for the six months ended June 30, 2008. Theincrease is attributable to Sovernet, which increased revenues by$1.9 million as a result of the addition of ION, which Sovernet acquiredon August 15, 2008. Sovernet continues to add business customers for itsvoice and data services at a strong rate and improve profitability; however,its overall revenue increase is partially offset by the decline in itsresidential data business, particularly its dial-up internet services. Localtelephone and data revenue in Guyana increased $0.2 million, or 1%, to $15.0million for the six months ended June 30, 2009 from $14.8 million for thesix months ended June 30, 2008. GT&T’s access lines in Guyana grewfrom approximately 135,000 lines as of June 30, 2008 to approximately142,000 lines as of June 30, 2009 (an increase of 5%). Revenue from thegrowth in access lines has been offset by a decrease in usage due to wirelessservice alternatives.  Data revenue at our U.S. Virgin Islands subsidiaryremained consistent.

 

*Internationallong distance revenue. *Internationallong distance revenue was $20.3 million during the six months ended June 30,2009, a decrease of $4.6  million, or18%, from $24.9 million in the six months ended June 30, 2008. We aresubject to illegal bypass via internet calling and other methods such as directsatellite bypass, which we believe has increased considerably since mid-2008.We also believe we experienced a reduction in the call volume into Guyana dueto the current worldwide economic slowdown.

 

*Otherrevenue*. Other revenue represents revenue from wirelessdigital television services in the U.S. Virgin Islands, which decreased 40% to$1.2 million for the six months ended June 30, 2009 from $2.0 millionfor the six months ended June 30, 2008. On May 31, 2009 the Companyterminated its digital television services to focus solely on providingwireless broadband data and dialup internet services.

 

*Terminationand access fee expenses.*Termination and access feesincreased by $5.3 million, or 33%, from $16.0 million to $21.3 million from the six months ended June 30, 2008 tothe six months ended June 30, 2009, respectively, as a result of increasedtraffic at Commnet, the consolidation of BDC’s results for 2009 and an increasein expenses at Sovernet due to the operating results of ION, which Sovernetacquired in August 2008.

 

*Internetand programming expenses. *Internetand programming expenses decreased from $1.8 million in the six months ended June 30,**2008 to $1.2 million in the six monthsended June 30,**2009. Thisdecrease was primarily from lower costs in the U.S. Virgin Islands.

 

*Engineeringand operations expenses.* Engineering and operations expensesincreased by $2.7 million, or 23%, from $11.8 million to $14.5 million for thesix months ended June 30, 2008 to the six months ended June 30, 2009,respectively. This increase is primarily the result of the expansion of ourwireless networks in the United States as well as the consolidation of BDC’sresults for 2009.

 

*Salesand marketing expenses.*Sales and marketing expensesincreased by $1.8 million, or 32%, from $5.6 million to $7.4 million from thesix months ended June 30, 2008 to the six months ended June 30, 2009,respectively. This increase is the result of the consolidation of BDC’s resultsfor 2009.

 

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* *

*General and administrative expenses. *General and administrativeexpenses increased by $5.3 million, or**42%*,* from $12.7 million for the six monthsended June 30, 2008 to $18.0 million for the six months ended June 30,2009.  Of this increase, $3.5**millionis the result of our consolidation of BDC in 2009.

 

*Depreciation and amortization expenses.*Depreciation and amortization expenses increased by $4.5 million, or 31%,from $14.5 million to $19.0 million for the six months ended June 30,2008 and the six months ended June 30,**2009,respectively. The increase is primarily due to the addition of fixed assetsfrom our network expansion in our rural U.S. wireless business, theconsolidation of BDC’s results for 2009, and the acquisitions of ION andIslandcom, which occurred in the third quarter of 2008.

 

*Interest expense.* On September 10,2008, the Company repaid the then outstanding $50.0 million term loan with theproceeds from a new $75.0 million term loan. At the same time, the Company’srevolving line of credit facility expanded from $20.0 million to$75.0 million. Also during September 2008, the Company entered intoan interest rate swap agreement, which is further detailed in Note 7 tothe Consolidated Financial Statements included in this Report.

 

Interestexpense increased from $1.3 million for the six months ended June 30,**2008 to $2.3 million for the six monthsended June 30,**2009. Theincrease in interest expense was due to the increase in our term loanborrowings. We had no outstanding borrowings under our revolving line of creditduring the six months ended of 2008 or 2009.

 

*Interest income*. Interest income decreasedto $0.7 million from $1.0 million for six months ended of 2008 and 2009,respectively.  This decrease is a result of a decrease in the interestrates that we received on our cash and investments.

 

*Income taxes. *The effective tax ratewas 42% for the six months ended June 30, 2008 and 2009.  Income taxexpense includes tax at the statutory U.S. federal and state income tax ratesas well as the Guyanese income taxes in excess of the statutory U.S. income taxrates.

 

*Net Income Attributable to Non-Controlling Interests.*For2008,**net income attributable tonon-controlling interests consists of the Guyana government’s 20% interest inGT&T, a non-controlling shareholder’s 4% interest in Sovernet, and othernon-controlling shareholders’ interests in certain consolidated subsidiaries ofCommnet.  For 2009, net income attributable to non-controlling interestsalso consists of non-controlling shareholders’ 42% equity interest in BDC aswell as consolidated subsidiaries of Sovernet and BDC.

 

Netincome attributable to non-controlling interests decreased from $2.4 million to$0.5 million for the six months ended June 30,**2008 and the six months ended June 30,**2009, respectively. This decrease is aresult of the allocation of non-controlling shareholders’ share of losses inour two early stage businesses (ION and Islandcom) following the adoption ofFAS 160 in 2009. We expect net income attributable to non-controlling intereststo increase in the future as our early stage businesses mature.

 

*Net income attributable to Atlantic Tele-Network, Inc.Stockholders.*As a result of the above factors, net incomeremained consistent at $15.2 million for the six months ended 2008 and 2009. Ona per share basis, net income increased from $1.19 per basic and $1.18 perdiluted share to $1.21 per basic and diluted share from 2008 to 2009,respectively.

 

*Segment results.*    Wehave five material operating segments, which we manage and evaluate separately:(1) Integrated Telephony—International; (2) Rural Wireless; (3) IslandWireless; (4) Integrated Telephony—Domestic; and (5) Wireless Data.Island Wireless became an operating segment upon completion of BDC’s sharerepurchase and the resulting increase in our equity interest in BDC, effective May 15,2008. Segment results are set forth in Note 11 to the ConsolidatedFinancial Statements included in this Report.

 

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**Regulatoryand Tax Issues**

 

We areinvolved in a number of regulatory and tax proceedings. See Note 12 to theConsolidated Financial Statements included in this Report. A material andadverse outcome in one or more of these proceedings could have a materialadverse impact on our financial condition and future operations.

 

**Liquidityand Capital Resources**

 

Wehave met, and anticipate that we will meet for the next twelve months, ouroperational liquidity needs through a combination of cash on hand andinternally generated funds and have funded capital expenditures andacquisitions with a combination of internally generated funds, cash on hand andborrowings under our credit facilities.

 

***Uses of Cash***

 

*Capital Expenditures.* A significantuse of our cash has been for capital expenditures for expanding and upgradingour networks. For the six months ended June 30, 2008 and 2009, we spent$20.9 million and $27.5 million on capital equipment, respectively. Of the$27.5 million of 2009 capital expenditures, we spent $11.3 million expandingCommnet’s network by increasing the number of base stations as well asswitching and cell site equipment required to expand our geographic coverageand technical capabilities. In Guyana, we have spent $11.0 million in 2009 forcapital expenditures, of which $6.3 million is related to early-stageconstruction costs on a new fiber optic submarine cable into the country, whichis expected to be ready for use during mid-2010, while the remainder was forthe expansion of the capacity and coverage of Guyana’s wireline and wirelessnetwork. A majority of the remaining 2009 consolidated capital expenditureswere incurred by our Island Wireless segment in connection with our networkdevelopment in Turks and Caicos, which is scheduled to be operational duringlate 2009.

 

We arecontinuing to invest in expanding the networks of all of our subsidiaries andexpect to incur capital expenditures between $40 million and $45 million duringthe year ending December 31, 2009, with over one-half used in connectionwith Commnet’s network expansion. In addition to these expenditures, we expectto incur an additional $5 million to $10 million of capital expenditures in2009 on the construction of the submarine fiber optic cable in Guyana. Weexpect to fund our current capital expenditures primarily from cash generatedfrom our operations, but may seek additional debt financing outside our bankcredit facility if it is available at satisfactory terms to us.

 

*Acquisitions and Investments.*We havefunded our recent acquisitions with a combination of cash on hand andborrowings under our credit facilities. In conjunction with the Alltelacquisition, the Company currently expects to amend and expand its existing CreditFacility to fund a majority of the acquisition’s purchase price.

 

Wecontinue to explore opportunities to acquire communications properties orlicenses in the Caribbean, the United States and elsewhere. We also exploreopportunities to substantially expand our existing networks in the UnitedStates and the Caribbean.  Such acquisitions may require externalfinancing. While there can be no assurance as to whether, when or on what termswe will be able to acquire any such businesses or licenses, such acquisitionsmay be accomplished through the issuance of shares, payment of cash orincurrence of debt.

 

*Dividends.*We use cash on hand to makedividend payments to our common stockholders when declared by our Board ofDirectors. For the six months ended June 30, 2009, our dividends to ourstockholders were $5.5 million (which reflects dividends paid on July 10,2009). We have paid quarterly dividends for the last 43 fiscal quarters.

 

*Stock Repurchase Plan*. Our Board ofDirectors approved a $5.0 million stock buyback plan in September 2004pursuant to which we have spent $2.1 million as of June 30, 2009repurchasing common stock.  We may repurchase shares at any time dependingon market conditions, our available cash and our cash needs.

 

*Cash Generated by Financing Activities- Credit Facility andInterest Rate Swap.*    On September 10,2008, we entered into a credit agreement with CoBank, ACB and other lenders asreferenced within the credit agreement (the “2008 CoBank Credit Agreement”).The 2008 CoBank Credit Agreement replaced our previous credit facility andprovides us with $75.0 million term loan (the “2008 Term Loan”) as well asa $75.0 million revolving credit facility (the “2008 Revolver Facility”,together with the 2008 Term Loan, the “2008 Credit Facility”). The 2008 CoBankCredit Agreement also provides, subject to lender consent, additional 

 

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term loan borrowingcapacity of up to $50 million with identical terms as the 2008 Term Loan. Inconjunction with the Alltel acquisition, the Company currently expects to amendand expand the 2008 Credit Facility to fund a majority of the acquisition’spurchase price.

 

The2008 Term Loan matures on September 10, 2015 and requires quarterlyrepayments of principal of $0.2 million through June 30, 2013 andquarterly repayments of principal of $1.4 million from September 30, 2013to June 30, 2015. The remaining outstanding principal balance of$60.0 million is to be repaid on September 10, 2015 when the 2008Term Loan matures. The 2008 Revolver Facility matures on September 10,2014 and includes a $5.0 million letter of credit facility.

 

Allborrowings under the 2008 Credit Facility bear interest at a rate, selected byus from one of the options set forth in the agreement, plus a margin. Suchinterest rate options include i) a base rate, defined as the greater ofthe prime rate or the federal funds rate plus 0.5%, or ii) a LIBOR rate.Margins for base rate borrowings range from 0% to 0.5%, depending upon ourleverage ratio, while margins for LIBOR borrowings range from 1.25% to 2.00%,also depending upon our leverage ratio. Borrowings as of June 30, 2009,including the interest rate swap agreement described below, were bearing aweighted average interest rate of 5.23%. The 2008 CoBank Credit Agreementcontains certain affirmative and negative covenants of the Company and itssubsidiaries as set forth below under “—Factors Affecting Sources of Liquidity.”The 2008 Credit Facility is guaranteed by the Company’s Commnet and Sovernetsubsidiaries and is collateralized by a security interest in substantially allof the assets of and stock owned by the Company and such guarantors. As of June 30,2009, the Company was in compliance with all of the covenants of the 2008CoBank Credit Agreement.

 

On September 23,2008 the Company executed a forward starting interest rate swap. The Company’sobjective in using the derivative is to add stability to interest expense andto manage our exposure to adverse changes in interest rates. The interest rateswap has an initial notional amount of $68 million, receives 1 monthLIBOR, and pays a fixed rate of 4.42%. The interest rate swap agreementeffectively converts the variable interest payments on the first$68 million of the 2008 Term Loan to a fixed rate of 4.42% plus theapplicable credit spread, over the life of the agreement. The interest rateswap agreement has a maturity date of September 15, 2015.

 

***Sources of Cash***

 

*Total Liquidity at June 30, 2009*.*    *As of June 30,2009, we had approximately $90.2 million in cash and cash equivalents, anincrease of $7.6 million from the December 31, 2008 balance of $82.6**million. We believe our existing cashbalances and other capital resources, including the $75.0 millionavailable under the 2008 Revolver Facility, are adequate to meet our currentoperating and capital needs. In conjunction with the Alltel assets acquisition,the Company expects to amend and expand its existing credit facility to fund amajority of the acquisition’s purchase price.

 

*Cash Generated by Operations.*Cash providedby operating activities was $45.9 million for the six months ended June 30,2009 compared to $19.3 million for the six months ended June 30, 2008primarily as a result of improvements  incertain components of our working capital.

 

***Factors Affecting Sources of Liquidity***

 

*Internally Generated Funds.*    Thekey factors affecting our internally generated funds are demand for ourservices, competition, regulatory developments, economic conditions in themarkets where we operate our businesses and industry trends within thetelecommunications industry. For a discussion of tax and regulatory risks inGuyana that could have a material adverse impact on our liquidity, see “ RiskFactors—Risks Relating to Our Wireless and Wireline Services in Guyana”, “Business—Regulationof Our GT&T Subsidiary” in our 2008 Form 10-K and Note 12 to theCondensed Consolidated Financial Statements included in this Report.

 

*Restrictions Under Credit Facility.*    The2008 CoBank Credit Agreement contains certain affirmative and negativecovenants of the Company and its subsidiaries. Among other things, thesecovenants restrict the Company’s ability to incur additional debt in the futureor to incur liens on its property. The 2008 CoBank Credit Agreement alsorequires the Company to maintain certain financial ratios including a netleverage ratio of less than or equal to 3.0 to 1, an interest coverage ratio ofgreater than or equal to 3.5 to 1 and an equity to assets ratio of greater thanor equal to 0.4 to 1. As of June 30, 2009, the Company was in compliancewith all of the covenants of the 2008 CoBank Credit Agreement and would be ableto fully draw the $75 million available under its revolving creditfacility.

 

*CapitalMarkets*.  Our abilityto raise funds in the capital markets depends on, among other things, generaleconomic conditions, the conditions of the telecommunications industry, ourfinancial performance, the state of the capital markets and our 

 

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compliance withSecurities and Exchange Commission (“SEC”) requirements for the offering ofsecurities. In June 2009, the Company’s “universal” shelf registrationstatement filed with the SEC expired by its own terms.  The Company currently anticipates that itwill file with the SEC a new “universal” shelf registration in the second halfof 2009, which, if declared effective by the SEC, will register potentialfuture offerings by the Company, from time to time, of the Company’ssecurities.

 

***RecentAccounting Pronouncements***

 

**RecentlyAdopted Standards**

 

In May 2009, theFinancial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standard (SFAS) No. 165, “Subsequent Events.”SFAS No. 165 establishes the standards of accounting for and disclosure ofevents that occur after the balance sheet date but before financial statementsare issued. This Statement also requires the disclosure of the date throughwhich subsequent events have been evaluated. The Company adopted this standard,as required, for the period ended June 30, 2009. Adoption of SFAS No. 165did not have a material impact on the Company’s consolidated financialstatements.

 

In April 2009, theFASB issued FSP FAS 157-4, *Determining FairValue When the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly*(“FSPFAS 157-4”).  FSP FAS 157-4 provides guidance for determining when atransaction is not orderly and for estimating fair value in accordance withFASB Statement No. 157, *Fair ValueMeasurements*(“FAS 157”)*,*whenthere has been a significant decrease in the volume and level of activity foran asset or liability.  FSP FAS 157-4requires the disclosure of the inputs and valuation techniques used, as well asany changes in valuation techniques and inputs used during the period, tomeasure fair value in interim and annual periods. In addition, FSP FAS 157-4requires that the presentation of the fair value hierarchy be presented bymajor security type as described in FASB Statement No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*(as amended by FSP FAS 115-2).  The adoption of FSP FAS 157-4 in the threemonth period ended June 30, 2009, did not have a material impact on theCompany’s consolidated financial statements.

 

In April 2009, theFASB issued FSP FAS 115-2 and FAS 124-2, *Recognitionand Presentation of Other-Than-Temporary Impairments*(“FSP FAS 115-2”). FSP FAS 115-2 requires the recognition of an other-than-temporary impairmentwhen an entity has the intent to sell a debt security or when it is more likelythan not that an entity will be required to sell the debt security before itsanticipated recovery in value. Additionally, FSP FAS 115-2 changes thepresentation and amount of other-than-temporary impairment losses recognized inthe income statement for instances in which the Company does not intend to sellor it is more likely than not that the Company will not be required to sell adebt security prior to the anticipated recovery of its remaining costbasis.  In addition to the changes in measurement and presentation, FSPFAS 115-2 expands the disclosures related to other-than-temporary impairmentsand requires all such disclosures to be included in both interim and annualperiods.  The provisions of FSP FAS 115-2were effective for the three month period ending June 30, 2009.  Theadoption of FSP FAS 115-2 had no impact on the Company’s consolidated financialstatements.

 

EffectiveJanuary 1, 2009, the Company adopted the provisions of SFAS No. 141(revised 2007), Business Combinations — a replacement of FASB Statement No. 141(“SFAS 141(R)”), which replaces SFAS No. 141, Business Combinations (“SFAS141”).  Although SFAS 141(R) retains the underlying concept of SFAS141 in that all business combinations are still required to be accounted for atfair value in accordance with the acquisition method, SFAS 141(R) requires the Company to revise its application of the acquisition method in anumber of significant aspects such as requiring the Company to expensetransaction costs and  to recognize 100% of the acquiree’s assets andliabilities rather than a proportional share for acquisitions of less than 100%of a business.  In addition, SFAS 141(R) eliminates the stepacquisition model and provides that all business combinations, whether full,partial, or step acquisitions, results in all assets and liabilities of anacquired business being recorded at their fair values at the acquisition date.

 

In April 2009,the FASB issued FASB Staff Position FAS 141(R)-1, Accounting for Assets andLiabilities Assumed in a Business Combination That Arise from Contingencies (“FSPFAS 141(R)-1”), which amends the initial and subsequent measurement guidanceand disclosure requirements in SFAS 141(R) for assets and liabilitiesarising from contingencies in a business combination. FSP FAS 141(R)-1 iseffective on a prospective basis for all business combinations for which theacquisition date is on or after January 1, 2009.

 

In January 2009,the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”) 28-1, *Interim Disclosures about Fair Value of FinancialInstruments* (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB28-1 amend SFAS No. 107, *Disclosuresabout Fair Values of Financial Instruments*, to require disclosuresabout fair value of financial instruments in interim financial statements aswell as in annual financial statements. Additionally, FSP FAS 107-1 and APB28-1 also amend APB Opinion No. 28, *InterimFinancial Reporting*, to require those disclosures in all interimfinancial statements. The Company adopted this standard, as required, for theperiod ended June 30, 2009. Adoption of FSP FAS 107-1 and APB 28-1 did nothave a material impact on the Company’s consolidated financial statements.

 

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**Standardsto be Adopted**

 

In December 2008,the FASB issued an FSP on SFAS No. 132(R)-1, *Employers’ Disclosures about Postretirement Benefit Plan Assets*(“FSP SFAS 132(R)-1”). FSP SFAS 132(R)-1 provides additional guidanceon an employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. The adoption of this interpretation will increasethe disclosures in the financial statements related to the assets of anemployers’ defined benefit pension plan. FSP SFAS 132(R)-1 is effective in2010. The Company does not anticipate that FSP SFAS 132(R)-1 will have amaterial impact on the consolidated financial statements.

 

In June 2009, theFASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”(SFAS No. 167). This Statement amends certain guidance in FIN 46(R) fordetermining whether an entity is a variable interest entity (VIE). SFAS No. 167requires an enterprise to perform an analysis to determine whether the Company’svariable interests give it a controlling financial interest in a VIE. A companywould be required to assess whether it has an implicit financial responsibilityto ensure that a VIE operates as designed when determining whether it has thepower to direct the activities of the VIE that most significantly impact theentity’s economic performance. In addition, this Statement amends FIN 46(R) torequire ongoing reassessments of whether an enterprise is the primarybeneficiary of a VIE. SFAS 167 is effective for the Company for fiscal year2011. The Company is currently evaluating the impact of this Statement.

 

In June 2009, theFASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and theHierarchy of Generally Accepted Accounting Principles — a replacement of FASBStatement No. 162*”*(Codification).The Codification does not change current U.S. GAAP but reorganizes allauthoritative literature in one place. This Statement is effective forfinancial statements issued for interim and annual periods ending after September 15,2009. Once effective, the Codification will supersede existing GAAP and becomethe source of authoritative accounting principles recognized by the FASB. ThisStatement only requires a change in disclosure and will not impact the Company’sconsolidated financial statements.

 

**Item 3. Quantitative and Qualitative Disclosures aboutMarket Risk**

 

*Guyana—U.S. Foreign Currency Exchange.*    GT&T’sfunctional currency is the U.S. dollar because a majority of GT&T’srevenues and expenditures have historically been transacted in U.S. dollars.From 2004 through June 2009, the value of the Guyana dollar has remainedfixed at $205 Guyana dollars to one U.S. dollar so we have not experienced anyforeign currency gains or losses during those periods. If this exchange ratewas to fluctuate in the future, this would affect our results of operations tothe extent we are required to remeasure any monetary assets or liabilitiesdenominated in Guyana dollars. Moreover, with the potential for competition ininternational services in the future, combined with the increases that GT&Thopes to have in local revenue which is billed in Guyana dollars, it ispossible that the Guyana dollar will become GT&T’s functional currency atsome point in the future. This would also expose us to foreign currency risk inthe event of exchange rate fluctuations.

 

*Interest Rate Sensitivity.*    Ourexposure to changes in interest rates is limited and relates primarily to ourvariable interest rate long-term debt. As of June 30, 2009,$68.0 million of our long term debt has a fixed rate by way of an interest-rateswap that effectively hedges our interest rate risk. The remaining$6.2 million of long term debt as of June 30, 2009 is subject tointerest rate risk. As a result of our hedging policy we believe our exposureto fluctuations in interest rates is not material.

 

**Item 4. Controls and Procedures**

 

*Evaluation of disclosure controls and procedures.*Ourmanagement, with the participation of our principal executive and principalfinancial officers, evaluated the effectiveness of our disclosure controls and proceduresas of June 30, 2009. The term “disclosure controls and procedures,” asdefined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,means controls and other procedures of a company that are designed to ensurethat information required to be disclosed by a company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by acompany in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including itsprincipal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure. Management recognizes that anycontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures. Based on the evaluation our disclosurecontrols and procedures as of June 30, 2009, our principal executiveofficer and principal financial officer concluded that, as of such date, ourdisclosure controls and procedures were effective at the reasonable assurancelevel. 

 

*Changes in internal control over financial reporting.*Therewas no change in the internal control over financial reporting that occurredduring the three months ended June 30, 2009 that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

 

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**PART II—OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

See Note 12 to the Condensed Consolidated FinancialStatements included in this Report.

 

**Item 1A. Risk Factors**

 

In addition to the other information set forth in thisReport, you should carefully consider the factors discussed in Part I, “Item1A. Risk Factors” in our 2008 Form 10-K, which could materially affect ourbusiness, financial condition or future results. The risks described in our2008 Form 10-K are not the only risks facing our Company. Additional risksand uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and/or operating results.

 

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

 

In September 2004,the Board of Directors authorized the Company to repurchase up to $5.0 millionof common stock. The repurchase authorizations do not have a fixed terminationdate and the timing of the buyback amounts and exact number of shares purchasedwill depend on market conditions.

 

The following tablereflects the repurchases by the Company of its common stock during the quarterended June 30, 2009:

 
| **Period**                                    | ** ** | **(a)  Total Number  of Shares  Purchased** | ** ** | **(b)  Average  Price  Paid per  Share** | ** ** | **(c)  Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **(d)  Maximum  Number (or  Approximate  Dollar Value) of  Shares that May  be Purchased  Under the Plans or  Programs** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1, 2009 – April 30, 2009 |       | —                                           |       | $                                             | —     |                                                                                                                             | —     |                                                                                                                                                             | $          | 2,919,965 |   |
| May 1, 2009 – May 31, 2009     |       | —                                           |       | —                                        |       | —                                                                                                                           |       | 2,919,965                                                                                                                                                        |       |
| June 1, 2009 – June 30, 2009   |       | —                                           |       | —                                        |       | —                                                                                                                           |       | 2,919,965                                                                                                                                                        |       |
|                                               |            |                                                  |            |                                               |            |                                                                                                                                  |            |                                                                                                                                                                  |            |  |  |

 

**Item 4.    Submission ofMatters to a Vote of Security Holders**

 

At our annual meeting ofstockholders held on June 3, 2009, the persons whose names are set forthbelow were elected as directors until the next annual metting of stockholdersand until their respective successors are elected and qualified. The relevant votinginformation for each nominee is set forth opposite such nominee’s name:

 
| ** **                   | ** ** | **Number of  Shares Voted  For** | ** ** | **Number of  Shares  Withheld** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|
| Martin L. Budd               |       | 12,427,542                                 |       | 1,147,374                            |       |
| Thomas V. Cunningham         |       | 13,272,865                                 |       | 302,051                              |       |
| Cornelius B. Prior, Jr. |       | 11,636,263                                 |       | 1,938,653                            |       |
| Michael T. Prior             |       | 11,772,820                                 |       | 1,802,096                            |       |
| Charles J. Roesslein         |       | 13,398,910                                 |       | 176,006                              |       |
| Brian A. Schuchman           |       | 11,749,891                                 |       | 1,825,025                            |       |
| Henry U. Wheatley            |       | 13,222,902                                 |       | 352,014                              |       |

 

Also at the annualmeeting, our stockholders ratified the selection of PricewaterhouseCoopers LLPas our independent auditor for the fiscal year ending December 31, 2009.The voting results related to the proposal were as follows:

 
| **Voted** | ** ** | **Number of Votes** | ** ** |
|-----------|------------|-------------------------------|------------|
| For       |       | 13,554,451                    |       |
| Against   |       | 11,705                        |       |
| Abstain   |       | 8,760                         |       |

 

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**Item 6. Exhibits**

 
|  3.1  |   | Restated  Certificate of Incorporation (incorporated by reference to Exhibit 4.1  to the Company’s Registration Statement on Form S-8 (File  No. 333-62416) filed June 6, 2001)                                                                                                          |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                              |
|  3.2  |   | Certificate  of Amendment to the Restated Certificate of Incorporation, as filed with the  Delaware Secretary of State on August 14, 2006 (incorporated by  reference to Exhibit 3.2 of the Company’s Quarterly Report on  Form 10-Q (File No. 001-12593) filed on August 14, 2006) |
|       |   |                                                                                                                                                                                                                                                                                                              |
|  10.1 |   | Purchase  Agreement by and between Atlantic Tele-Network, Inc. and Cellco  Partnership d/b/a Verizon Wireless, dated as of June 9, 2009  (incorporated by reference to Exhibit 2.1 of the Company’s Current  Report on Form 8-K (File No. 001-12593) filed on June 15,  2009)  |
|       |   |                                                                                                                                                                                                                                                                                                              |
|  31.1 |   | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a) of the  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                              |
|  31.2 |   | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a) of the  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                              |
|  32.1 |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                              |
|  32.2 |   | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     |

 

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**SIGNATURES**

** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** **                  |   | Atlantic  Tele-Network, Inc.      |
|-----------------------------|--------|----------------------------------------|
|                        |   |                                   |
| Date:  August 10, 2009 |   | /s/  Michael T. Prior                  |
|                        |   | Michael  T. Prior                      |
|                        |   | President  and Chief Executive Officer |
|                        |   |                                   |
| Date:  August 10, 2009 |   | /s/  Justin D. Benincasa               |
|                        |   | Justin  D. Benincasa                   |
|                        |   | Chief  Financial Officer and Treasurer |

 

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